<PAGE>

                          RAVISENT TECHNOLOGIES INC.

                                   FORM 10-Q
                         QUARTER ENDED MARCH 31, 2001


                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-Q

[X]   QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
      OF 1934 For the Quarter Ended March 31, 2001

[_]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

      For the transition period from ____________ to ______________
             Commission File number 000-26287

                          RAVISENT Technologies Inc.
            (Exact Name of Registrant as Specified in Its Charter)


                     Delaware                                23-2763854
        (State or other jurisdiction of                   (I.R.S. Employer
        incorporation or organization)                 Identification Number)


                           257 Great Valley Parkway
                          Malvern, Pennsylvania 19355

                          ___________________________

                   (Address of Principal Executive Offices)
      Registrant's Telephone Number, Including Area Code: (800) 700-0362

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                   Yes X  No
                          ---------------------------

On May 9, 2001, 17,475,445 shares of the Registrant's Common Stock, $.001 par
value, were outstanding.

                                       1
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

                                  FORM 10-Q
                         QUARTER ENDED MARCH 31, 2001


                                     INDEX
<TABLE>
<CAPTION>
                                                                                                           Page
<S>                                                                                                        <C>
Part I:          Financial Information

Item 1:          Financial Statements

                 Consolidated Balance Sheets at March 31, 2001 (unaudited) and December 31, 2000              3

                 Consolidated Statements of Operations for the three months ended March 31, 2001 and 2000     4
                 (unaudited)

                 Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and 2000     5
                 (unaudited)

                 Notes to Consolidated Financial Statements                                                   6

Item 2:          Management's Discussion and Analysis of Financial Condition and Results of Operations        19

Item 3:          Quantitative and Qualitative Disclosures About Market Risk                                   32

Part II:         Other Information

Item 1:           Legal Proceedings                                                                           49

Item 2:           Changes in Securities and Use of Proceeds                                                   50

Item 3:           Defaults upon Senior Securities                                                             51

Item 4:           Submission of Matters to a Vote of Security Holders                                         51

Item 5:           Other Information                                                                           51

Item 6:           Exhibits and Reports on Form  8-K                                                           52
</TABLE>

                                       2

<PAGE>

                          RAVISENT TECHNOLOGIES INC.
                          CONSOLIDATED BALANCE SHEETS
                (In thousands, except share and per share data)

<TABLE>
<CAPTION>
PART I
ITEM 1: FINANCIAL STATEMENTS
                                                                                    March 31,        December 31,
                                                                                      2001               2000
                                                                                   ------------------------------
                                                                                   (unaudited)
<S>                                                                                <C>               <C>
 ASSETS
 Current assets:
    Cash and cash equivalents, including restricted cash of  $1,800 in 2001
    and $1,806 in 2000........................................................     $      69,559       $    9,615
    Accounts receivable, net of allowance for doubtful accounts of $2,463 in
    2001 and $2,405 in 2000...................................................             4,198            5,901
    Inventories, net..........................................................            22,878           20,883
    Prepaid expenses..........................................................               514              963
    Loans receivable - officers ..............................................               322              662
    Other current assets......................................................                37              547
                                                                                   -------------       ----------
        Total current assets..................................................            97,508           38,571

 Furniture and equipment, net.................................................             1,436            3,995
 Goodwill and other intangibles, net of accumulated amortization of $480 in
 2001 and $7,425 in 2000......................................................             5,217           17,530
 Loan receivable--officer......................................................               25               25
 Other assets ................................................................               891               72
                                                                                   -------------       ----------
        Total assets..........................................................     $     105,077       $   60,193
                                                                                   =============       ==========

 LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities:
    Accounts payable..........................................................     $       9,415       $   11,088
    Accrued expenses .........................................................             4,077            2,147
    Income taxes payable......................................................             2,931                -
    Deferred revenue..........................................................             1,771            1,473
    Other current liabilities.................................................               136              657
                                                                                   -------------       ----------

        Total current liabilities.............................................            18,330           15,365
                                                                                   -------------       -----------
 Non-current liabilities:
    Deferred income taxes.....................................................               564                -
                                                                                   -------------       -----------
        Total liabilities.....................................................            18,894           15,365

 Commitments and contingencies (note 8)

 Stockholders' equity:
    Preferred stock, $.001 par value; 5,000,000 shares authorized in 2001 and
    2000, none issued or outstanding
    Common stock, $.001 par value 50,000,000 authorized; 17,649,316
    shares issued in 2001 and 17,594,429 in 2000..............................                17               17
    Additional paid-in capital................................................           120,708          121,330
    Deferred stock compensation...............................................            (1,003)          (3,241)
    Accumulated deficit.......................................................           (32,642)         (72,380)
    Accumulated other comprehensive income....................................              (177)            (178)
    Treasury stock at cost, 200,000 shares                                                  (720)            (720)
                                                                                   -------------       ----------

        Total stockholders' equity............................................            86,183           44,828
                                                                                   -------------       ----------

        Total liabilities and stockholders' equity..........................       $     105,077       $   60,193
                                                                                   =============       ==========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

                          RAVISENT TECHNOLOGIES INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                (In thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                                   Three Months Ended March 31,
                                                                                     2001                 2000
                                                                                  ---------------------------------
                                                                                  (unaudited)          (unaudited)
<S>                                                                               <C>                  <C>
Revenues:
    License and services ..................................................       $      2,770         $      2,921
    Hardware ..............................................................                 46                2,789
                                                                                  ------------         ------------

Total revenues ............................................................              2,816                5,710

Cost of revenues:
    License and services ..................................................                617                1,129
    Hardware ..............................................................                 37                2,514
                                                                                  ------------         ------------

Total cost of revenues ....................................................                654                3,643
                                                                                  ------------         ------------

Gross profit ..............................................................              2,162                2,067

Research and development
    Non-cash compensation .................................................              1,738                   81
    Other research and development expense ................................              2,407                2,143
Sales and marketing
    Non-cash compensation and other expense ...............................                 69                  359
    Other selling  and marketing expense ..................................              3,492                1,882
General and administrative
    Non-cash compensation .................................................                 64                   41
    Other general and administrative expense ..............................              2,415                2,343
Depreciation and amortization .............................................              1,666                1,356
                                                                                  ------------         ------------
        Operating loss ....................................................             (9,689)              (6,138)

Gains on sales of assets ..................................................             52,037                   --
Interest (income) expense, net and other (income) .........................               (366)                (616)
                                                                                  ------------         ------------
Income (loss) before income taxes .........................................             42,714               (5,522)
    Provision for income taxes ............................................              2,979                   15
                                                                                  ------------         ------------

Net income (loss) .........................................................       $     39,735         $     (5,537)
                                                                                  ============         ============

Basic net income (loss) per weighted average common share outstanding .....       $       2.28         $      (0.34)
                                                                                  ============         ============

Diluted net income (loss) per weighted average common share outstanding ...       $       2.14         $      (0.34)
                                                                                  ============         ============
Weighted average number of common shares outstanding used in calculation of
basic net income (loss) per share .........................................         17,415,045           16,068,969
                                                                                  ============         ============
Weighted average number of common shares outstanding used in calculation of
diluted net income (loss) per share .......................................         18,582,846           16,068,969
                                                                                  ============         ============
</TABLE>


         See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                           RAVISENT TECHNOLOGIES INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                                Three Months Ended March 31,
                                                                                                ---------------------------
                                                                                                  2001              2000
                                                                                                ---------------------------
                                                                                                       (Unaudited)
<S>                                                                                             <C>               <C>
Cash flows from operating activities:
  Net income (loss) .....................................................................       $ 39,735          $ (5,537)
  Adjustments to reconcile net loss to net cash used in operating activities:
    Depreciation and amortization .......................................................          1,666             1,356
    Gain on sales of assets .............................................................        (52,037)               --
    Non-cash compensation and other expenses ............................................          1,438               481
    Deferred income taxes................................................................            564                --
  Changes in items affecting operations:
    Accounts receivable .................................................................          1,442              (420)
    Inventory ...........................................................................         (1,995)           (1,024)
    Loan receivable--officer ............................................................             36              (131)
    Prepaid expenses and other current assets ...........................................           (522)              (24)
    Other assets and intangible assets ..................................................         (1,522)               --
    Accounts payable ....................................................................         (1,536)           (1,754)
    Accrued expenses and other current liabilities ......................................          1,478               108
    Income taxes payable ................................................................          2,931                --
    Deferred revenue ....................................................................            298              (184)
                                                                                                --------          --------
Net cash used in operating activities ...................................................         (8,024)           (7,129)
                                                                                                --------          --------

Cash flows from investing activities:
  Capital expenditures ..................................................................           (166)             (294)
  Net proceeds from sales of assets .....................................................         68,112                12
  Investment in short-term investment ...................................................             --               (14)
                                                                                                --------          --------
Net cash provided by (used in) investing activities .....................................         67,946              (296)
                                                                                                --------          --------

Cash flows from financing activities:
  Repayments under other liabilities ....................................................             --              (389)
  Net proceeds from exercise of stock options and warrants ..............................              3                79
                                                                                                --------          --------
Net cash provided by (used in) financing activities .....................................              3              (310)
                                                                                                --------          --------

Effect of exchange rate changes on cash and cash equivalents ............................             19               (14)
                                                                                                --------          --------

Net increase (decrease) in cash and cash equivalents ....................................         59,944            (7,749)
Cash and cash equivalents:
  Beginning of year .....................................................................          9,615            48,251
                                                                                                --------          --------
  End of year ...........................................................................       $ 69,559          $ 40,502
                                                                                                ========          ========


Supplemental disclosure of cash flow information:
Cash paid during the period for:
    Interest ............................................................................       $      1          $     10
    Income taxes ........................................................................             --                --

</TABLE>


         See accompanying notes to consolidated financial statements.

                                       5
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Information with respect to March 31, 2001 and 2000 is unaudited)

          Unaudited Interim Financial Statements

          The interim consolidated financial statements of the Company for the
three months ended March 31, 2001 and 2000 included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
condensed or omitted pursuant to such rules and regulations relating to interim
financial statements. In the opinion of management, the accompanying unaudited
interim consolidated financial statements reflect all adjustments, consisting
only of normal recurring adjustments, necessary to present fairly the financial
position of the Company at March 31, 2001 and 2000 and the results of its
operations and cash flows for the three months ended March 31, 2001 and 2000.
The unaudited consolidated financial statements included in this Form 10-Q
should be read in conjunction with the audited consolidated financial statements
and notes thereto, included in the Company's Form 10-K for the year ended
December 31, 2000.

1)  Summary of Significant Accounting Policies

       a)   Description of Business (Note 11)

          RAVISENT Technologies Inc. ("the Company"), which changed its name
from Divicore Inc. in June 1999 and from Quadrant International, Inc. in May
1999, designs, develops, licenses and markets core-based modular software
solutions that enable digital video and audio stream management in personal
computer systems. In March 2001, the Company sold its consumer electronics
business and its Internet appliance business (note 11). The Company also
provides supporting hardware designs to selected customers as well as
customization services and customer support. The Company's solutions enable
decoding (playback) and encoding (recording) of multimedia formats such as
digital versatile disk (DVD); direct broadcast satellite (DBS) and high-
definition television (HDTV) on existing personal computers and, during 2000,
consumer electronics platforms. The Company's customers consist principally of
personal computer manufacturers.

          During 2000, the Company's revenues were substantially generated from
selling digital video solutions and Internet appliance devices to personal
computer, consumer electronics, and Internet appliance original equipment
manufacturers. During 1999 and 1998 the Company's revenue was substantially
generated from selling hardware-based digital video solutions to personal
computer and consumer electronics original equipment manufacturers. The Company
changed its strategic focus during 1999 from selling hardware-based digital
video solutions to licensing its proprietary technology to provide software-
based digital video solutions to primarily personal computer and consumer
electronics original equipment manufacturers. In November of 1999, the Company
acquired Teknema Inc., which expanded the Company's product offerings to the
Internet appliance market. In August 2000, the Company acquired Cinax Designs
Inc., which enhanced the Company's digital video product line.

          The Company was incorporated in Pennsylvania in April 1994 and
reincorporated in Delaware as RAVISENT Technologies Inc. in 1999.

          The Company has historically sustained significant net losses and
negative cash flows from operations since its inception. For the three months
ended March 31, 2001, the Company's net income was $39.7 million, which is
attributable to gains on the sales of assets of $52 million (note 11). The
Company plans on investing heavily in product development, sales and marketing
and to a lesser degree in operations and administrative areas. There can be no
assurances that the Company will be able to generate sufficient revenues
necessary to achieve or sustain profitability in the short or long term.
However, management believes that the current cash and cash equivalent amounts
will be sufficient to sustain the Company's operations through March 31, 2002.
See note 11 for sales of assets.

       b)   Principles of Consolidation

          The consolidated financial statements include the financial statements
of the Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.

       c)   Cash and Cash Equivalents and Short-term Investments

                                       6

<PAGE>

                          RAVISENT TECHNOLOGIES INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

          For purposes of the statement of cash flows, the Company considers all
highly liquid instruments purchased with an original maturity of three months or
less to be cash equivalents. Short-term investments represented a bank
certificate of deposit, with an original maturity greater than three months.

       d)   Inventories

          Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out method (FIFO). Inventory is net of
reserves of approximately $3,799,000 at March 31, 2001 and December 31, 2000.

       e)   Revenue Recognition

          The Company recognizes software revenues in accordance with the
American Institute of Certified Public Accountants' (AICPA) Statement of
Position 97-2, Software Revenue Recognition (SOP 97-2). License revenues for
one-time license fees and up-front license fees are recognized in the period in
which the license agreement is signed, the fee is fixed and determinable,
delivery of the technology has occurred requiring no significant production,
modification or customization and collectibility is probable. The up-front
license fee terms generally provide an agreed-upon level of sales of a
licensee's products below which a licensee will not be obligated to remit
royalty payments. Additionally, the up-front fees are nonrefundable even in the
event such level is not attained. License revenues consisting of fees paid on a
per unit basis are recognized when earned, which is generally based on receiving
notification from licensees stating the number of products sold which
incorporate the licensed technology from the Company and for which license fees,
based on a per unit basis, are due. The terms of the license agreements
generally require the licensees to give notification to the Company within 45 to
60 days of the end of the quarter during which the sales of the licensees'
products take place. In a number of cases, the revenue recorded by the Company
will occur in the quarter following the sale of the licensee's products to its
customers.

          In cases where a license fee is associated with the delivery of
multiple elements and vendor-specific objective evidence cannot be established
for each of the individual elements, the entire fee from the arrangement is
deferred until the earlier of the establishment of vendor-specific objective
evidence or the delivery of all the elements of the arrangement. In cases where
a license grants a customer unspecified upgrade rights, the license fee is
deferred and recognized ratably over the term of the arrangement. Billed amounts
due from the customers in excess of revenue recognized are recorded as deferred
revenue.

          Hardware revenues are recognized upon shipment of products to
customers. The Company's sales to original equipment manufacturers do not
provide a right of return unless in the event of manufacturing defect, which is
the responsibility of the Company's third party contract manufacturers.

          Revenues related to services are recognized upon delivery of the
service in the case of time and material contracts. Revenues related to
development contracts involving significant modification or customization of
hardware or software under unilateral or joint development arrangements are
recognized using the percentage-of-completion method, based on performance
milestones specified in the contract where such milestones fairly reflect
progress toward contract completion. In other instances, progress toward
completion is based on individual contract costs incurred to date compared with
total estimated contract costs. Losses on contracts are recognized for the
entire anticipated loss, if any, as soon as the loss becomes evident.

                                       7
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

       f)   Use of Estimates

          The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

       g)  Computation of Net Income (Loss) Per Share

     The Company computes earnings per share in accordance with SFAS No. 128,
Earnings Per Share. In accordance with SFAS No. 128, basic earnings per share
("EPS") is computed using the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed using the
weighted average number of common and dilutive common equivalent shares
outstanding during the period. Common equivalent shares consist of the
incremental common shares issuable upon the exercise of stock options and
warrants (using the treasury stock method), and the incremental common shares
issuable upon the conversion of the convertible preferred stock (using the if-
converted method), if any. Under the treasury stock method, the dilutive effect
of options and warrants are weighted from the later of the beginning of the
period or the date of issuance. Common equivalent shares also consist of
contingently issuable shares, whose issuance is contingent upon the satisfaction
of certain conditions. If all necessary conditions are satisfied by the end of
the period, such shares are included in common equivalent shares as of the
beginning of the period. Common equivalent shares are excluded from the
calculation if their effect is anti-dilutive.

The following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computations for net income:

<TABLE>
<CAPTION>
              For the three months ended March 31, 2001
                (in thousands, except per share data)
----------------------------------------------------------------------
                               Income        Shares        Per-Share
                            (Numerator)   (Denominator)     Amount
                            -----------   ------------   -------------
<S>                         <C>           <C>            <C>
Net income                      $39,735              -               -

BASIC EPS
Net income available to
 common stockholders             39,735         17,415           $2.28
                                                         =============
EFFECT OF DILUTIVE
 SECURITIES
Warrants                              -            224
Outstanding Options                   -            663
Contingently Issuable
 Shares                               -            281
                            -----------   ------------
DILUTED EPS
Net income available to
 common stockholders and
 assumed conversions            $39,735         18,583           $2.14
                            ===========   ============   =============
</TABLE>

Options to purchase approximately 1.2 million shares of common stock at various
exercise prices were outstanding during the first quarter of 2001 but were not
included in the computation of diluted EPS because the corresponding exercise
prices of the options were greater than the average market price of the common
shares. The options have various expiration dates during the next 10 years.

Warrants to purchase approximately 0.1 million shares of common stock, net of
the warrant issued to American Trading S.A. that was canceled on March 28, 2001,
issued at various exercise prices were outstanding during the first quarter of
2001, but were not included in the calculation of diluted EPS because the
corresponding exercise prices were greater than the average market price of the
common shares.  The warrants have various expiration dates during the next 5
years.

The effects of dilution for the first quarter of 2000 are not considered since
the effects of assumed conversion or exercise would have an antidilutive effect
on EPS.

       h)   Recent Accounting Pronouncements

          The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position or cash flows.

       i)   Reclassifications

          Certain prior year amounts have been reclassified to conform with the
current year presentation.

2)   Comprehensive Income (Loss)

          The components of comprehensive income (loss) are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                                Three Months Ended March 31,
                                                                           --------------------------------------
                                                                                 2001                  2000
                                                                           ------------------    ----------------
<S>                                                                        <C>                   <C>
          Net income (loss)                                                           $39,735             $(5,537)
          Foreign currency translation adjustment                                         (19)                (14)
          Unrealized gain on available-for-sale investment                                 18                   -
                                                                           ------------------    ----------------

          Comprehensive income (loss)                                                 $39,734             $(5,551)
                                                                           ==================    ================
</TABLE>


3)   Inventories

          Inventories consist of the following (in thousands):


<TABLE>
<CAPTION>
                                                                            March 31,         December 31,
                                                                              2001                2000
                                                                        ---------------    -----------------
<S>                                                                     <C>                <C>
        Raw materials                                                         $ 16,756          $    17,369
        Products in process                                                         21                  762
        Finished products                                                        6,101                2,752
                                                                        ---------------    -----------------

        Inventories, net                                                      $ 22,878          $    20,883
                                                                        ===============    ================
</TABLE>

                                       8
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

4)   Bank Line of Credit

          The Company has a loan and security agreement with a commercial bank
that provides the Company a line of credit in the amount of the lesser of $5
million or the borrowing base, as defined (limited to a percentage of eligible
accounts receivable). The line of credit provides for the Company to issue a
maximum of $2 million in the form of letters of credit that reduces the amount
of available borrowings under the line of credit. The line of credit matures in
June 2001 and bears interest at the bank's prime rate (8% at March 31, 2001).
The line of credit is collateralized by substantially all of the assets of the
Company. The Company is required to comply with quarterly financial covenants,
as defined in the loan and security agreement. At December 31, 2000 and prior to
the completion of the sale of the consumer electronics business, the Company
was not in compliance with certain covenants, but received a waiver of the
covenants from the bank through January 31, 2001. No amounts were available
through January 31, 2001 under the terms of the waiver. There was no amount
outstanding under the line of credit at March 31, 2001 and $1 million was
available as of March 31, 2001.

5)   Accrued Expenses

          Accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                                                       March 31,          December 31,
                                                                         2001                2000
                                                                 ----------------------------------------
<S>                                                                <C>                 <C>
Payroll and related costs........................................              $  797              $  397
Accrued Dolby royalties .........................................                 477                 664
Legal and professional fees......................................                 823                 290
Legal settlements................................................               1,323                  --
Warranty.........................................................                 361                 361
Other............................................................                 296                 435
                                                                               ------              ------
                                                                               $4,077              $2,147
                                                                               ======              ======
</TABLE>


6)   Loans Receivable-Officers

          In November 2000, the Company entered into an agreement to loan a
newly hired officer of the Company $50,000 for the purpose of relocation. The
loan is secured by any personal or real property acquired with the funds and by
all of the

                                       9
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Company's stock held or subsequently acquired by the officer. The loan bears
interest at 9% per annum and will be forgiven in November 2002 including all
accrued and unpaid interest, or is due immediately if the officer's employment
is terminated by the Company for cause or by the officer for any reason.

     From September to November 2000, the Company advanced $189,510 to an
officer of the Company. The loan is payable on demand.

     In August and September 2000, the Company entered into agreements to loan
an executive officer of the Company $52,000 and $96,000, respectively, for an
aggregate loan amount of $148,000. The loans are secured by all of the Company's
stock held or subsequently acquired by the officer. The loans bear interest at
5% per annum and were originally due and payable on December 31, 2000, including
all accrued and unpaid interest. The payment terms of the loans will be extended
to June 30, 2001.

     In January 2000, the Company entered into an agreement to loan a former
officer of the Company $160,000. The loan is secured by all of the Company's
stock held or subsequently acquired by the former officer and any proceeds from
the disposition of the stock. The loan bears interest at 5% per annum and was
due December 31, 2000. The former officer committed to paying the balance in
full by June 30, 2001.

     In November 1999, the Company entered into an agreement to loan an officer
of the Company approximately $288,800. The loan was to be repaid in twenty-four
monthly installments of approximately $13,000, and bears an interest rate of 8%.
The agreement also provided for a monthly bonus to the officer in an amount
equal to the monthly loan repayment. In connection with the sale of the Internet
appliance assets (note 11) the unpaid loan balance of approximately $114,000 was
forgiven.

7)  Warrants

     In June 2000, the Company entered into a one-year distribution rights
agreement (the "Agreement") with American Trading S.A. ("ATSA") for exclusive
distribution of the Company's Internet television set-top box product in Brazil.
Upon the signing of the Agreement the Company issued a warrant to purchase
1,500,000 shares of the Company's common stock to ATSA with an exercise price of
$7.00 per share, which approximated fair market value on the date of grant. The
warrant was fully vested and non-forfeitable on the date of grant, had a
two-year term, and contained certain exercise restrictions as described in the
warrant agreement. At June 30, 2000, the Company recorded the estimated fair
value of the warrant of $5.6 million as an intangible prepaid distribution
rights fee and additional paid-in capital. On March 28, 2001, pursuant to the
January 2001 settlement and release agreement with ATSA canceling the Agreement,
the warrant was canceled (note 8). On March 28, 2001, the warrant had an
estimated fair value of approximately $435,000, which was estimated using the
Black-Scholes option pricing model with the following assumptions: risk-free
interest rate of 4.21%, volatility factor of 96%, no dividend factor and a
remaining life of 1.25 years.


                                       10
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

8)  Commitments and Contingencies

     a)       Litigation

     On or about August 10, 2000, Corum Group, Ltd. filed an action against
RAVISENT and Cinax Designs Inc. in the United States District Court for the
Western District of Washington (No. C00-1352D). Corum, a business consultant,
alleges that it had an agreement with Cinax whereby Cinax would pay Corum an 8%
"transaction fee" in the event Corum located a purchaser for Cinax. The Company
acquired Cinax by agreement dated as of July 13, 2000 for compensation of $3.5
million in cash and an aggregate of 825,000 shares of our common stock and non-
voting exchangeable preferred stock of one of our subsidiaries, Ravisent British
Columbia Inc., which preferred stock is exchangeable, on a one-for-one basis,
into shares of our common stock. In the complaint Corum alleges that it
introduced RAVISENT to Cinax and that it is therefore entitled to $281,362 and
66,000 shares of our common stock. As part of our acquisition of Cinax, the
shareholders of Cinax agreed to indemnify us for 50% of any liability stemming
from the Corum claim and an aggregate of 53,500 shares of our common stock and
non-voting exchangeable preferred stock of Ravisent British Columbia Inc. have
been placed in escrow to secure this indemnification obligation. The parties
attended a voluntary mediation session on January 22, 2001, and a trial date had
been set for October 9, 2001. On April 17, 2001, the parties entered into a
settlement and release agreement whereby the Company agreed to pay cash and
issue shares of RAVISENT common stock to Corum in full settlement of the matter.
The amount in settlement was accrued in full as of March 31, 2001.

     Between February and April 2000, eleven class action lawsuits were filed
against RAVISENT and certain of its officers and directors in the United States
District Court for the Eastern District of Pennsylvania. On May 25, 2000, the
cases were consolidated under Civil Action No. 00-CV-1014, and entitled "In re
RAVISENT Technologies Inc. Securities Litigation". Pursuant to the court's
consolidation order, a

                                       11

<PAGE>

                          RAVISENT TECHNOLOGIES INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

consolidated and amended class action complaint was filed on June 14, 2000 with
an alleged class period of July 15, 1999 through April 27, 2000. This complaint
alleges violations of the federal securities laws, specifically Sections 11 and
15 of the Securities Act of 1933, Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, and Rule 10b-5 promulgated thereunder and seeks
unspecified damages on behalf of a purported class of purchasers of our stock
during the period stated above. On July 3, 2000, we filed a motion to dismiss
the consolidated and amended class action complaint. The motion is presently
fully briefed and the parties are awaiting a hearing date to be set for the
motion. In connection with the Company's initial public offering, the Company
purchased directors and officers insurance that provides the Company with
protection from claims made against officers, directors or the Company arising
from claims including but not limited to any written demand for damages and any
civil, criminal, administrative, or regulatory proceedings and appeals.

         Certain of our employees and certain holders of 5% or more of our
common stock are members of the putative classes alleged in these actions and
therefore may have interests adverse to us with respect to the alleged claims in
these actions.

         We believe that this lawsuit is without merit and that we have
meritorious defenses to the actions. We plan to vigorously defend the
litigation. However, failure to successfully defend these actions could
substantially harm our results of operations, liquidity and financial condition.

         A third party who licenses software to the Company filed recently a
lawsuit against the Company in California. The dispute arose out of a contract
whereby the Company licensed software from the third party for use with the
eSurfer browser bundled with our Internet set-top box assets recently sold to
Phoenix Technologies Ltd. The third party claims there are fees due and owing
under the contract. The Company disputes the amounts the third party claims to
be due. The remaining balance due under the terms of the contract are included
in accounts payable as of March 31, 2001. Since the complaint was filed only
recently, we have not filed responsive pleadings but will do so by the time the
law requires.

         In the opinion of management, the amount of the ultimate liability with
respect to the above claims will not materially affect the Company's financial
position, results of operations, or cash flows.

     b)  Distribution Rights Agreement

         In June 2000, the Company entered into a one-year distribution rights
agreement ("the Agreement") with American Trading S.A. ("ATSA") for exclusive
distribution of the Company's Internet television set-top box product in Brazil.
Upon the signing of the Agreement the Company issued a warrant to purchase
1,500,000 shares of the Company's common stock to ATSA with an exercise price of
$7.00 per share, which approximated fair market value on the date of grant. The
warrant was fully vested and non-forfeitable

                                       12

<PAGE>

                          RAVISENT TECHNOLOGIES INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

on the date of grant, had a two-year term, and contained certain exercise
restrictions as described in the warrant agreement.

         Due to the parties' differing interpretations of the terms of the
Agreement, in January 2001 the parties entered into a settlement and release
agreement (the Release). The Release provides for the immediate termination of
the Agreement, including the right for RAVISENT to terminate the warrant and a
royalty-free right in 2001 for Ravisent to use the mark "WWWTV," which RAVISENT
will own after December 31, 2001. In addition, in January 2001 the Company paid
approximately $1.2 million to ATSA in exchange for the settlement and release
and is required to pay an additional minimum finder's fee of $1 million in
January 2002 for sales of the Internet set-top box in Brazil in 2001. The
aggregate amount of the settlement of $2.2 million, net of the estimated fair
value of the canceled warrant of $0.4 million (note 7) is included in other
selling and marketing expense in the consolidated statement of operations for
the three months ended March 31, 2001.

         From time to time, the Company has received, and expects to continue to
receive, notices of claims of infringement of other parties' proprietary rights
and other claims in the ordinary course of business. Management believes the
amount of the ultimate liability with respect to these claims will not
materially affect the Company's financial position, results of operations, or
cash flows.

                                      13
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

9)   Segment Information

         The Company operates in a single industry segment, which is the
development and licensing of its technology.

         The Company sells and licenses its technology to customers primarily in
North America, Asia-Pacific and Europe. The net loss from operations for all
periods presented is derived primarily from the company's North American
operations, which generates revenues from the following geographic regions (in
thousands):

<TABLE>
<CAPTION>
                                                                              Quarters ended March 31,
                                                                         ----------------------------------
Country/ Geographic Region                                                     2001              2000
--------------------------                                               ----------------------------------
<S>                                                                      <C>                     <C>
North America:
     United States                                                                  $1,804           $1,647
     Canada                                                                            743              642
                                                                         ------------------ ---------------
          Total - North America                                                      2,547            2,289

Europe:
     Italy                                                                              --            1,168
     Germany                                                                            40              122
     France                                                                             15               --
     Other                                                                              28               --
                                                                         ------------------ ---------------
          Total - Europe                                                                83            1,290

Asia-Pacific:
     Taiwan                                                                             --            1,526
</TABLE>

                                       14
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

     Japan                                                  185           225
     Malaysia
                                                      ---------     ---------
          Total - Asia-Pacific                              185         1,751

South America - Other                                         1           380
                                                      ---------     ---------
Total                                                    $2,816        $5,710
                                                      =========     =========



10)   Segment Reporting

          Segment information is presented in accordance with Statement of
Financial Account Standards No. 131 ("SFAS 131"), "Disclosures About Segments Of
An Enterprise And Related Information." This standard requires segmentation
based upon the Company's internal organization and disclosure of revenue and
operating income based upon internal accounting methods. For the quarter ended
March 31, 2001 the Company had three reportable segments: personal computer
("PC"), consummer electronics ("CE") and Internet appliance ("IA") (note 11).

          PC: This group designs, develops, licenses and markets core-based
modular software solutions that enable digital video and audio stream management
in personal computer systems. The Company also provides supporting hardware
designs to selected customers as well as customization services and customer
support. The Company's solutions enable decoding (playback) and encoding
(recording) of multimedia formats such as digital versatile disk (DVD); direct
broadcast satellite (DBS) and high-definition television (HDTV) on existing
personal computers.

          CE: This segment designed, developed, licensed and marketed core-based
modular software solutions that enable digital video and audio stream management
in consumer electronics devices. The Company also provided supporting hardware
designs to selected customers as well as customization services and customer
support. The Company's solutions enable decoding (playback) and encoding
(recording) of multimedia formats such as digital versatile disk (DVD); direct
broadcast satellite (DBS) and high-definition television (HDTV) on existing
consumer electronics platforms (note 11).

          IA: The Company's Internet technology group was involved in the
development of products for the emerging market in information appliances. The
Company sold Internet appliance hardware reference designs and software
technology through intellectual property licenses and agreements with Internet
service providers. This group provided the Company with a number of
Internet-related products, including an efficient web browser, and several
Internet appliance reference designs including a Web Pad design, Internet ready
TV and Monitor designs and an Internet-ready screenphone (note 11).

          The Company evaluates operating segment performance based on revenue
and gross profit. It has not historically evaluated segment performance based on
operating income nor allocated assets to its individual operating segments.

                                       15
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

<TABLE>
<CAPTION>
                                                                                  Three Months Ended March 31,
                                                                                  2001                    2000
                                                                         -------------------     -------------------
                                                                                       (In thousands)
<S>                                                                 <C>                     <C>
Revenue:
    PC................................................................           $2,369                  $2,539
    CE................................................................              421                      45
    IA................................................................               26                   3,126
                                                                                 ------                  ------
        Total.........................................................           $2,816                  $5,710
                                                                                 ======                  ======

Gross profit:
    PC................................................................           $1,837                  $1,674
    CE................................................................              327                      34
    IA................................................................               (2)                    359
                                                                                 ------                  ------
        Total.........................................................           $2,162                  $2,067
                                                                                 ======                  ======
</TABLE>

11)  Sales of Assets

     a)   Sale of Consumer Electronics Assets

                                       16
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

     On March 1, 2001, pursuant to an Asset Acquisition Agreement, the Company
sold certain assets related to its consumer electronics business to
STMicroelectronics N.V. ("STMicroelectronics"), a Dutch corporation. The assets
sold included certain contracts, equipment, intangible assets, intellectual
property, prepaid expenses, accounts receivable and other assets primarily
related to the operations of the consumer electronics business. In connection
with the sale, the Company and STMicroelectronics entered into certain
agreements including an Assignment and Assumption of Lease with respect to the
Company's former corporate headquarters office facility located in Malvern,
Pennsylvania. Certain employees of the Company entered into employment
agreements with STMicroelectronics. Pursuant to the terms of the Asset
Acquisition Agreement, STMicroelectronics paid approximately $55.6 million in
cash consideration, of which $0.8 million is being held by a third party in
escrow for a period of 18 months for indemnification purposes and is included in
other assets in the consolidated balance sheet as of March 31, 2001. In
connection with the asset sale, the Company and certain of its subsidiaries
granted to STMicroelectronics certain non-exclusive rights to license and
distribute certain of its technology used in its Internet appliance products
(note 11b) and personal computer products.

     The Company recorded a gain on the sale of approximately $47.5 million
during the quarter ended March 31, 2001. The net gain was calculated as follows
(in thousands):

     Sale Price.......................................       $55,602
     Accounts receivable..............................          (261)
     Accrued expenses assumed.........................           137
     Net book value of deferred stock compensation....          (498)
     Net book value of furniture and equipment........        (2,036)
     Net book value of goodwill and intangibles.......          (968)
     Other assets.....................................           (18)
     Employee transition and inducement costs.........        (2,956)
     Professional and legal fees......................        (1,487)
                                                             -------

     Gain on sale of consumer electronics assets......       $47,515
                                                             =======

     b)  Sale of Internet Appliance Assets

    On March 23, 2001, pursuant to an Asset Acquisition Agreement, the Company
sold certain assets related to its Internet appliance business to Phoenix
Technologies Ltd. ("Phoenix"), a Delaware corporation. The assets sold included
certain contracts, equipment, intangible assets, intellectual property and
prepaid expenses primarily related to the operations of the Internet appliance
business. Certain employees of the Company entered into employment agreements
with Phoenix Technologies, Ltd. Pursuant to the terms of the Asset Acquisition
Agreement, Phoenix paid $18 million in cash consideration, of which $1.8 million
is being held by a third party in escrow for a period of 12 months for
indemnification purposes and is included in restricted cash in the consolidated
balance sheet as of March 31, 2001.

    The Company recorded a gain on the sale of approximately $4.5 million during
the quarter ended March 31, 2001. The net gain was calculated as follows (in
thousands):

     Sale Price.........................................    $ 18,000
     Prepaid expenses and other assets..................      (1,204)
     Net book value of deferred stock compensation......        (121)
     Net book value of furniture and equipment..........        (466)
     Net book value of goodwill and intangibles.........     (10,586)
     Employee transition and inducement costs...........        (763)
     Professional and legal fees........................        (338)
                                                             -------
     Gain on sale of Internet appliance assets..........    $  4,522
                                                             =======

                                       17
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

   c)  Pro Forma Financial Information

     The following unaudited pro forma financial information presents the
results of operations of the Company as if the dispositions occurred on January
1, 2001, after giving effect to certain adjustments, primarily revenues and
personnel costs associated with the disposed businesses and amortization of
goodwill. The unaudited pro forma financial information for the quarter ended
March 31, 2001 (in thousands except per share data) does not necessarily reflect
the results of operations that would have occurred had the dispositions been
completed on January 1, 2001.

<TABLE>
<CAPTION>
                                                                         Three Months Ended March 31, 2001

                                                                                                                     Ravisent
                                                                 Adjustments       Pro Forma-       Adjustments     Pro Forma-
                                                    Ravisent     to record         Subsequent       to record       Subsequent
                                                   Historical    sale of CE        to sale of       sale of IA    to sales of CE
                                                   (unaudited)     assets          CE assets          assets      and IA assets
                                                   -----------   -----------       -----------      ----------    --------------
<S>                                                <C>           <C>               <C>              <C>           <C>
Revenues:
    License and services ........................   $      2,770            (421)          2,349              --       $   2,349
    Hardware ....................................             46               0              46             (26)             20
                                                    ----------------------------------------------------------------------------
Total revenues ..................................          2,816            (421)          2,395             (26)          2,369

Cost of revenues:
    License and services ........................            617             (94)            523                             523
    Hardware ....................................             37               0              37             (28)              9
                                                    ----------------------------------------------------------------------------
Total cost of revenues ..........................            654             (94)            560             (28)            532
                                                    ----------------------------------------------------------------------------
Gross profit ....................................          2,162            (327)          1,835               2           1,837

Research and development
    Non-cash compensation .......................          1,738             (45)          1,693              (4)          1,689
    Other research and development expense ......          2,407            (693)          1,714            (775)            939
Sales and marketing
    Non-cash compensation .......................             69              (6)             63             (44)             19
    Other selling  and marketing expense ........          3,492            (349)          3,143          (1,768)          1,375
General and administrative
    Non-cash compensation .......................             64              (4)             60                              60
    Other general and administrative expense ....          2,415            (419)          1,996            (145)          1,851
Depreciation and amortization ...................          1,666            (216)          1,450          (1,070)            380
                                                    ----------------------------------------------------------------------------
        Operating income (loss) .................   $     (9,689)       $  1,405        $ (8,284)       $  3,808        $ (4,476)
                                                    ============================================================================
</TABLE>

                                       18
<PAGE>

                          RAVISENT TECHNOLOGIES INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

<TABLE>
<CAPTION>
<S>                                                 <C>             <C>             <C>             <C>             <C>
Basic operating income (loss) per weighted
average common share outstanding ................   $       (.56)    $      0.08    $      (0.48)   $        .22    $      (0.26)
                                                    ============    ============    ============    ============    ============
Weighted average number of common shares
outstanding used in calculation of basic
operating income (loss) per share ...............         17,415          17,415          17,415          17,415          17,415
                                                    ============    ============    ============    ============    ============
</TABLE>

     ITEM 2:

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

     The following discussion of the financial condition and results of
operations of RAVISENT should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto included elsewhere
in this report. The information herein contains forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 that
involve a number of risks and uncertainties. A number of factors could cause our
actual results, performance and achievements or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward looking statements. These factors, as
discussed below, see Risk Factors, and in our Annual Report on Form 10K filed on
April 2, 2001, include, but are not limited to, the competitive environment in
the personal computer industry in general and our specific market areas; changes
in prevailing interest rates and the availability of terms of financing to fund
the anticipated growth of our business; inflation; changes in costs of goods and
services; our inability to protect our intellectual property; economic
conditions in general and in our specific market areas; demographic changes;
changes in or failure to comply with foreign, federal, state and/or local
government regulations; claims for damages asserted against us; changes in
operating strategy or development plans; the ability to attract and retain
qualified personnel; changes in our acquisition and capital expenditure plans;
and other factors referenced herein. In addition, such forward looking
statements are necessarily dependent upon assumptions, estimates and dates that
may be incorrect or imprecise and involve known and unknown risks, uncertainties
and other factors. Accordingly, any forward looking statements included herein
do not purport to be predictions of future events or circumstances and may not
be realized. Forward looking statements can be identified by, among other
things, the use of forward looking terminology such as "believes," "expects,"
"may," "will," "should," "seeks," "pro forma," "anticipates," or "intends," or
the negative of any thereof, or other variations thereon or comparable
terminology, or by discussions of strategy or intentions. Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward looking statements. We disclaim any obligations to update any
such factors or to publicly announce the results of any revisions to any of the
forward looking statements contained herein to reflect future events or
developments.

Overview and Recent Events

     For the period through March 1, 2001, we designed, developed, licensed and
marketed innovative modular software solutions that enabled digital video and
audio stream management in personal computer systems, consumer electronics
devices and Internet appliances. We also licensed supporting hardware designs to
select customers, provided customization services and customer support. In
addition, we also sold Internet appliances and components to telecommunications
companies, Internet service providers and others. Our product offerings included
a software or hardware Internet set-top box solution, which included all of the
intellectual property, software, hardware design and manufacturing design
necessary for a manufacturer or Internet service provider to launch an
affordable product, and Nucleo, a hardware reference design based on our
ARM-7500 processors with e-Surfer(TM) - a thin customizable browser designed
specifically for Internet appliances.

     Effective as of March 1, 2001, and pursuant to an Asset Acquisition
Agreement dated as of January 18, 2001, along with our subsidiaries, Ravisent
I.P., Inc., Ravisent Operating Company, Inc., and VIONA Development Hard and
Software Engineering GmbH & Co. KG, we sold and licensed substantially all of
our assets related to our consumer electronics business to STMicroelectronics,
NV, a Dutch corporation, STMicroelectronics, Inc., a Delaware corporation and
STMicroelectronics GmbH (collectively, "STMicroelectronics"). The assets sold
and licensed include contracts, equipment, intangible assets, intellectual
property, prepaid expenses, accounts receivable and other assets primarily
related to the operation of the consumer electronics business. In addition,
approximately 76 of our employees, most of whom were associated with our
consumer electronics business, accepted employment with STMicroelectronics in
connection with the asset sale. Pursuant to the terms of the Asset Acquisition
Agreement, STMicroelectronics paid approximately $55.6 million in cash
consideration, of which $0.8 million is being held by a third party in escrow
for a period of 18 months for indemnification purposes. In connection with the
asset sale, we granted to STMicroelectronics certain non-exclusive rights to
license and distribute certain of our technology used in our Internet appliance
products and our personal computer products. In addition, we agreed not to
compete in significant aspects of the consumer electronics market until March 1,
2006. Revenues and gross margin for the consumer electronics business totaled
approximately $0.4 million, or 15% of total revenues, and $0.3 million, or 15%
of total gross profit, respectively, for the three months ended March 31, 2001.
These amounts are not necessarily indicative of the results that would have been
obtained for any future period.

                                       19
<PAGE>

     Effective as of March 23, 2001, and pursuant to an Asset Acquisition
Agreement dated as of March 21, 2001, along with certain of our subsidiaries we
sold substantially all of the assets related to our Internet appliance business
to Phoenix Technologies Ltd. a Delaware corporation, for $18 million in cash
consideration, of which $1.8 million is being held in escrow by a third party
for indemnification purposes for 12 months. The assets sold include certain of
the contracts, equipment, intangible assets, intellectual property, prepaid
expenses, and other assets primarily related to the operation of the Internet
appliance business. Under the agreement, Phoenix Technologies purchased our
e-Surfer embedded software Internet browser and related hardware designs for the
Internet Appliance market. In addition, in connection with this asset sale, 13
of our employees, associated with the Internet appliance business accepted
employment with Phoenix. With the exception of the expected sales in 2001 of
inventory not included in the transaction, we expect only nominal sales
attributable to our Internet appliance business in 2001.

     In the first quarter of 2001, revenue from our Internet appliance product
line was less than $50,000 and represented less than 1% of the total revenues.
These amounts are not necessarily indicative of the results that would have been
obtained for any future period.

     We now design, develop, license and market innovative modular software
solutions that enable digital video and audio stream management primarily for
personal computer systems. We also license supporting hardware designs to
selected customers and provide customization services and customer support. Our
solutions enable decoding and encoding of multimedia formats such as DVD,
DBS/DVB and HDTV primarily on personal computer platforms. Our digital solutions
incorporate industry standards for video and audio compression and are
independent of operating systems and silicon components.

     As of March 31, 2001 inventory is $22.9 million, an increase of
approximately $2.0 million over the balance at December 31, 2000. This increase
is attributed to the manufacture of finished goods for products of our recently
sold Internet appliance group to Phoenix Technologies Ltd. While our current
product offerings have changed as a result of this sale, we continue to pursue
existing customer relationships and sales channels, which require raw materials
and finished goods relating to the manufacture of Internet appliance devices. In
addition, we also plan on leveraging Phoenix Technologies' distribution
channels, customers and sales leads for the sale of this inventory. Presently,
management believes that the Company can sell the inventory in the normal course
of its business and is continually assessing the market for these products.
However to the extent that we are unsuccessful at selling the inventory through
the above sales channels we may have to explore alternative sales channels which
may not be on terms that the Company will be able to recover the carrying value
of the inventory.

     During the quarter ending March 31, 2001, our customers consisted primarily
of personal computer and consumer electronics manufacturers and distributors. In
addition, we supplied our software solutions and hardware designs to selected
peripherals providers and semiconductor manufacturers. Approximately $2.8
million or 98% of our first quarter 2001 revenues were from licenses and
services. Revenues from personal computer and peripheral manufacturers were
derived primarily from sales of our Software CineMaster.

     By entering into manufacturing and license agreements with third parties,
under which we no longer manufacture Hardware CineMaster, we have substantially
completed the transformation of our PC business model from a hardware revenue
base to a license revenue base. Under the PC licensing business model, we will
receive either a per-unit license fee or a flat fee on sales of the CineMaster
DVD and HDTV products. As a result of this shift, the mix between license and
service revenues and hardware revenues may vary according to future sales of our
current inventories, and correspondingly, the cost of revenues associated with
these revenue streams will also vary. During 2001 hardware revenues are expected
to increase as we sell our current inventory.

     License revenues consist of fees paid on a per unit basis, each time a
manufacturer ships a product that incorporates our software solutions, or may
consist of flat fee arrangements, bulk license purchases, or license grants.
Services revenues now consist of engineering fees from personal computer,

                                       20
<PAGE>

peripheral and semiconductor manufacturers for custom engineering services.
During the first quarter 2001, we earned services revenues from consumer
electronics manufacturers for custom engineering. However, in March 2001 we
disposed of both this product line as well as our Internet appliance product
line pursuant to the March 2001 asset sales to Phoenix Technologies Ltd. and
STMicroelectronics N.V. Services are generally billed on either a time and
material basis or on a project or contract basis. License revenues are
recognized when earned, which is generally based on receiving notification from
a licensee detailing the shipments of products incorporating our technology. In
a number of cases, this occurs in the quarter following the sale of the
licensee's product to its customers. Our license agreements generally have a
term of one year or less, and typically require payment within 45 or 60 days
after the end of the calendar quarter in which the product is shipped. Some of
our contracts may also require payment of an up-front license fee. License fees
paid in advance, with no further future commitment, are recognized in the period
that the license agreement is signed, the fee is fixed and determinable, the
technology is delivered and accepted, and collectibility is probable.

     The amount and timing of some fixed fees could cause our operating results
to vary significantly from period to period due to the timing and number of
agreements, as well as the timing of the recognition of the associated revenue.
In cases where a fixed or lump-sum license fee is associated with the delivery
of multiple elements, and vendor-specific objective evidence of fair value
cannot be established for the individual elements, the entire fee from the
arrangement is deferred until the earlier of the establishment of vendor-
specific objective evidence of fair value or the delivery of all the elements of
the arrangement. In cases where a license grants a customer unspecified upgrade
rights, the fixed or lump sum license fee is deferred and recognized ratably
over the term of the arrangement. Billed amounts due from the customers in
excess of revenue recognized are recorded as deferred revenue. Services revenues
are recognized upon delivery of the service in the case of time and material
contracts or on a percentage completion basis in the case of project-based
contracts. Hardware product sales are recognized upon shipment of the product to
the manufacturer or end user.

     In April 1998, we acquired Viona, a German engineering services company.
Prior to the acquisition, we had contracted with Viona to co-develop its
products and a significant portion of its software and systems architecture. The
purchase price was approximately $11.4 million, and the acquisition was recorded
under the purchase method of accounting. The results of operations of Viona have
been included in our operating results since the date of acquisition. In
connection with the acquisition, we expensed $7.9 million of the purchase price
as acquired in-process research and development. The remaining portion of the
purchase price was attributable to acquired assets, which were primarily fixed
assets and accounts receivable, recorded at fair market value, in the amount of
$0.5 million, and intangible assets totaling $3.5 million less, liabilities
acquired of $0.6 million. The intangible assets consisted of goodwill valued at
$3.5 million and workforce in place valued at $0.04 million. We sold most
of the intellectual property used in the consumer electronics business that we
acquired from VIONA in connection with the sale of our consumer electronics
business to STMicroelectronics in March 2001. The remaining unamortized book
value of the goodwill recorded in connection with the acquisition of Viona,
which was being amortized over its estimated useful life of four years, and the
net book value of all of Viona's furniture and equipment has been included in
the net gain on sale of assets.

     In November 1999, we acquired Teknema, an Internet technology company
involved in the development of products for the emerging market in information
appliances for an aggregate of approximately $14.9 million in cash, common stock
and options to purchase common stock. Prior to the acquisition we loaned Teknema
$1 million. The acquisition was recorded under the purchase method of
accounting. In connection with the acquisition, we expensed $1.8 million of the
purchase price as acquired in-process research and development. We sold all of
the intellectual property that we acquired from Teknema in connection with the
sale of our Internet appliance business to Phoenix Technologies in March 2001,
as described above. The remaining unamortized

                                       21
<PAGE>

book value of the goodwill recorded in connection with the acquisition of
Teknema, which was being amortized over its estimated useful life of four years,
has been included in the net gain on sale of assets.

     In August 2000, we acquired all of the outstanding capital stock of Cinax
Designs Inc. ("Cinax"), a company located in British Columbia, Canada involved
in the development of digital video software products based on MPEG audiovisual
compression for approximately $3.5 million in cash and an aggregate of 825,000
shares of our common stock and shares of no par, non-voting exchangeable
preferred stock of our subsidiary, Ravisent British Columbia Inc., which shares
of preferred stock are exchangeable, at the option of the holder, on a
one-for-one basis, into shares of our common stock. The acquisition was recorded
under the purchase method of accounting. In connection with the acquisition, we
expensed $1.3 million of the purchase price as acquired in-process research and
development. Goodwill and other intangible assets of $3.2 million has been
recorded and is being amortized on a straight-line basis over a period of four
years. We have retained this intellectual property and have not transferred or
sold it as a result of the STMicroelectronics or Phoenix transactions.

     During the first quarter 2001, operating expenses increased by $3.6 million
due primarily to the settlement of the American Trading S.A. distribution
agreement, the immediate recognition of prepaid and deferred compensation
expense from the Cinax acquisition, amortization of goodwill recorded as part of
the acquisition of Cinax and the pursuit of strategic initiatives.

     We are in the process of seeking strategic transactions for our business.
These strategic transactions could include a merger of our remaining business
with another company, an acquisition of another company, a sale of the assets of
our remaining business or some combination thereof.

Results of Operations

Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000.

The following table sets forth, for the periods indicated, the amount and
percentage of total revenues represented by certain items reflected in our
consolidated statements of operations:

                          RAVISENT Technologies Inc.
             Unaudited Consolidated Statements of Operations Data
                                (In thousands)

                                       22
<PAGE>

<TABLE>
<CAPTION>
                                                                            2001                       2000
                                                                            ----                       ----
                                                                     Amount   Percentage              Percentage of
                                                                              of Revenue      Amount        Revenue
<S>                                                                  <C>      <C>             <C>     <C>
       Revenues:
          License and services                                      $ 2,770         98.4%    $ 2,921           51.2%
          Hardware                                                       46          1.6       2,789           48.8
                                                                    -------      -------     -------        -------
            Total revenues                                            2,816        100.0       5,710          100.0

       Cost of revenues:
          License and services                                          617         21.9       1,129           19.8
          Hardware                                                       37          1.3       2,514           44.0
                                                                    -------      -------     -------        -------
            Total cost of revenues                                      654         23.2       3,643           63.8
                                                                    -------      -------     -------        -------

       Gross profit                                                   2,162         76.8       2,067           36.2

       Research and development
          Non-cash compensation                                       1,738         61.7          81            1.4
          Other research and development expense                      2,407         85.5       2,143           37.5
       Sales and marketing
          Non-cash compensation                                          69          2.4         359            6.3
          Other selling and marketing expense                         3,492        124.0       1,882           33.0
       General and administrative
          Non-cash compensation                                          64          2.3          41            0.7
          Other general and administrative expense                    2,415         85.8       2,343           41.0
       Depreciation and amortization                                  1,666         59.2       1,356           23.8
                                                                    -------      -------     -------        -------

       Operating loss                                                (9,689)      (344.1)     (6,138)        (107.5)

       Gains on sales of assets                                      52,037      1,847.9           -              -
       Interest (income) expense, net and other (income)               (366)       (13.0)       (616)         (10.8)
                                                                    -------      -------     -------        -------

       Income (loss) before income taxes                             42,714       1516.8      (5,522)         (96.7)

       Provision for income taxes                                     2,979        105.8          15            0.3
                                                                    -------      -------     -------        -------

       Net income (loss)                                            $39,735       1411.0%    $(5,537)         (97.0)%
                                                                    =======      =======     =======        =======
</TABLE>


Revenues. Total revenues decreased 51% from $5.7 million for the quarter ended
March 31, 2000 to $2.8 million for the quarter ended March 31, 2001. License and
services revenue decreased 5% to $2.8 million for the quarter ended March 31,
2001, due primarily to the sale of the CE assets, decline in Internet appliance
revenues and increased competition in the PC DVD market. Included in our license
and services revenue for the quarter ended March 31, 2001 was a substantial
license grant to a new OEM customer. To the degree these types of arrangements
cannot be made with our customers in the future, license and service revenues
may decrease. Hardware revenues decreased 98% from $2.8 million for the quarter
ended March 31, 2000 to $0.05 million for the quarter ended March 31, 2001. The
decrease was attributable to our continued movement towards the change in
business model in which we will license our software and our hardware designs
rather than sell finished goods and components and recording hardware revenue.

Our revenues are concentrated among a few customers. In the quarter ended March
31, 2001, two customers accounted for 62% of our revenues. While we believe that
the number of customers

                                       23
<PAGE>

incorporating our PC technology into their products will grow, we expect that a
significant portion of revenue will continue to be concentrated among a
relatively small number of customers for the foreseeable future. The revenues
from particular customers may vary widely from period to period depending on the
addition of new contracts and the volumes and prices at which licensees sell
RAVISENT-enabled products to end users in any given period.

We sell our products primarily to personal computer manufacturers in North
America, Europe, and the Pacific Rim. In the first quarter of 2001 companies
based in North America accounted for a majority of our revenues. Sales outside
of the United States have been primarily through U.S. manufacturers that
distribute their products to end users overseas and contract manufacturers based
in Asia.

The PC market has softened considerably in recent months, and we have limited
visibility into future results. We believe that the revenue and corresponding
gross margin is likely to decline sequentially in the future due largely to the
sales of the product lines and continued softness in the PC market.

Cost of Revenues. Cost of revenues consist primarily of license fees paid to
third parties for technologies incorporated into our products, including Dolby
Digital technology, hardware components sold to manufacturing firms, and costs
associated with shipment of Software CineMaster. Cost of revenues decreased 82%
from $3.6 million for the quarter ended March 31, 2000 to $0.7 million for the
quarter ended March 31, 2001. The decrease in cost of revenues was primarily due
to lower hardware revenue.

Gross Profit. Gross profit increased from $2.1 million for the quarter ended
March 31, 2000 to $2.2 million for the quarter ended March 31, 2001, primarily
due to lower cost of sales on license and service revenues. For the quarter
ended March 31, 2001, 98% of total revenue was derived from license and services
revenues, in comparison to 51% for the comparable quarter in 2000. The gross
profits percentage for license and services revenues is much higher than that
from hardware sales. As a percentage of total revenues, gross profit increased
from 36% for the quarter ended March 31, 2000 to 77% for the quarter ended March
31, 2001, primarily as a result of a higher proportion of license revenues.

Research and Development Expenses. Research and development expenses consist
primarily of engineering and related costs associated with the development of
new products, customization of existing products for customers, quality
assurance and testing. Research and development expenses increased 12%, from
$2.1 million for the quarter ended March 31, 2000, to $2.4 million for the
quarter ended March 31, 2001. As a percentage of total revenues, research and
development expenses increased from 38% to 86%. The increase in research and
development expenses in absolute dollars was due primarily to increased use of
third party consultants associated with our Internet appliance product line, as
well as severance paid to the former developers of our DVR development group.
The increase in research and development expenses as a percentage of total
revenues resulted primarily from our lower quarterly revenue due to the
discontinuance of hardware sales. We expect research and development expenses to
decrease in 2001 compared to 2000 as our consumer electronics and Internet
appliance product lines have been sold.

Non-cash research and development expense. Non-cash expense relates to both
compensation related to stock options and acquisition-related stock
compensation. Non-cash research and development expense increased 2,046% from
$0.08 million for the quarter ended March 31, 2000 to $1.7 million for the
quarter ended March 31, 2001. The increase over the prior year is due primarily
to the immediate recognition of the prepaid and deferred stock compensation
related to reductions in staffing in connection with the closing of our
Vancouver office in March 2001.

Sales and Marketing Expenses. Sales and marketing expenses consist primarily of
salaries, travel expenses and costs associated with trade shows, advertising and
other marketing efforts, as well as technical support costs. Sales and marketing
expenses increased 86% from $1.9 million for the quarter

                                       24
<PAGE>

ended March 31, 2000 to $3.5 million for the quarter ended March 31, 2001. As a
percentage of total revenues, sales and marketing expenses increased from 33% to
124%. The increase in absolute dollars was primarily due to costs associated
with the settlement of our American Trading S.A. distribution rights agreement.
Excluding this item, sales and marketing expense for the quarter would have
decreased $0.2 million or 12% in comparison to the comparable quarter in the
prior year. The increase in sales and marketing expenses as a percentage of
total revenues resulted primarily from our lower quarterly revenue due to the
discontinuance of hardware sales, and partially to an increase in sales and
marketing expense. We expect sales and marketing expenses to decrease in 2001
compared to 2000 as our consumer electronics and Internet appliance product
lines have been sold and other staff reductions have occurred.

Non-cash sales and marketing expense. Non-cash sales and marketing expense
relates to compensation related to stock options. Non-cash sales and marketing
expense decreased 81% from $0.4 million for the quarter ended March 31, 2000 to
$0.07 million for the quarter ended March 31, 2001. The decrease is primarily
attributed to a one-time charge for the modification of stock options of a
former employee during the quarter ended March 2000. Stock options granted to
employees at less than fair value are recorded as deferred compensation expense
and amortized over the vesting periods of two to four years.

General and Administrative Expenses. General and administrative expenses consist
primarily of personnel and support costs for our finance, human resources,
information systems and other management departments. General and administrative
expenses increased 3% from $2.3 million for the quarter ended March 31, 2000 to
$2.4 million for the quarter ended March 31, 2001. As a percentage of total
revenues, general and administrative expenses increased from 41% to 86%. In
absolute dollars, the increase in general and administrative expense was due to
an uncollectible account associated with the consumer electronics business.
General and administrative expenses increased as a percentage of total revenues
primarily due to our lower quarterly revenue due to the discontinuance of
hardware sales. We expect general and administrative expenses to decrease in
absolute dollars in 2001 compared to 2000 as our business requires less
administrative support for fewer employees and product lines resulting from the
sales of the consumer electronics and Internet appliance businesses.

Non-cash general and administrative expense. Non-cash general and administrative
expense relates primarily to amortization of compensation related to stock
options. Non-cash general and administrative expense increased 56% from $ 0.04
million for the quarter ended March 31, 2000 to $0.06 million for the quarter
ended March 31, 2001. Included in compensation related to stock options is
amortization of deferred stock compensation related to stock options granted to
employees at less than fair value amortized over the vesting period of two to
four years.

Depreciation and Amortization. We recorded depreciation and amortization of $1.7
million for the quarter ended March 31, 2001, compared to $1.4 million for the
quarter ended March 31, 2000. The increase primarily relates to the amortization
of the goodwill recorded as part of the acquisition of Cinax Designs in August
2000, including an impairment charge for the workforce in place intangible
associated with our Cinax acquisition, net of the decrease in amortization of
goodwill associated with Viona, disposed of as of March 1, 2001 in connection
with the sale of our consumer electronics business. See "Acquired In-Process
Research and Development Expense."

Other income and expense


                                       25

<PAGE>

As a result of the sale of the assets related to our consumer electronics
business we recorded a gain on this sale of approximately $47.5 million during
the quarter ended March 31, 2001.

     As a result of the sale of assets related to our Internet applicance
business we recorded a gain on this sale of approximately $4.5 million during
the quarter ended March 31, 2001.

Acquired In-Process Research and Development

     In August 2000, we completed the acquisition of Cinax Designs Inc. The
acquisition of Cinax was recorded under the purchase method of accounting. A
portion of the purchase price was allocated to in-process research and
development, which resulted in a charge of $1.4 million to our operations in
August 2000. As of the acquisition date, Cinax was conducting ongoing research
and development into new products in the form of two projects, including
enhancements to the existing products previously developed by Cinax. At the date
of acquisition, these projects had not reached technological feasibility and
there was no alternative future use for them. The two research and development
projects included:

     WinVCR version 2. This product enables computer users to record real-time
MPEG video straight to their hard drives. The current upgrade includes a
substantial amount of new features such as better programmability as well as
faster, embedded encoding capabilities with MPEG-2. At the time of acquisition,
this development project was approximately 75% complete.

     MediaLock. This product is designed for rights management of video
distribution over digital networks. This product is expected to allow content
producers to easily protect their copyrights prior to distribution with its
frame scrambling, playtime decryption and unique password system capabilities.
At the time of acquisition, this development project was approximately 50%
complete.

     In November 1999, we completed the acquisition of Teknema, Inc. The
acquisition of Teknema was recorded under the purchase method of accounting. A
portion of the purchase price was allocated to in-process research and
development technology, which resulted in a

                                       26
<PAGE>

charge of $1.9 million to our operations in November 1999. The in-process
research and development technology was valued using the cash flow model, under
which projected income and expenses attributable to the purchased technology
were identified, and potential income streams were discounted using a 20%-30%
discount rate for risks, probabilities and uncertainties, including the stage of
development of the technology, viability of target markets, and other factors.

     As of the acquisition date, Teknema was conducting ongoing research and
development into three new projects including enhancements to products
previously developed by Teknema. At the date of acquisition, these projects had
not reached technological feasibility and there was no alternative future use
for them.

     In March 2001, we sold all of the intellectual property that we acquired
from Teknema to Phoenix Technologies in the sale of our Internet appliance
business as described above. The remaining unamortized book value of the
goodwill recorded in

                                       27
<PAGE>

connection with the acquisition of Teknema, which was being amortized over its
estimated useful life of four years, is included in the net gain on the sale of
assets.

     In April 1998, we completed the acquisition of Viona, a company
specializing in the development of digital video technology. We paid $6.1
million in cash, of which $2.6 million was paid at closing, $2.1 million was
paid during 1999, and $1.4 million will be paid in equal installments at the end
of the next three fiscal years, issued 1,204,820 shares of our common stock then
valued at $4.8 million and incurred transaction costs of $0.8 million. For
accounting purposes, payments due in future periods have been discounted. In
January 2001 the final installment was paid.

     The acquisition of Viona was recorded under the purchase method of
accounting. A portion of the purchase price was allocated to in-process research
and development technology, which resulted in a charge of approximately $7.9
million to our operations in April 1998. The in-process research and development
technology was valued using a cash flow model, under which projected income and
expenses attributable to the purchased technology were identified, and potential
income streams were discounted using a 30%-35% discount rate for risks,
probabilities and uncertainties, including the stage of development of the
technology, viability of target markets, and other factors.

     As of the acquisition date, Viona was conducting significant ongoing
research and development into five new software and hardware products including
enhancements to the existing digital video and audio system solutions previously
developed by us. At the date of acquisition, these projects had not reached
technological feasibility and there was no alternative future use for them.

                                       28
<PAGE>


     In March 2001, we transferred to STMicroelectronics intellectual property
that we used in the consumer electronics business that we acquired from VIONA.
The remaining unamortized book value of the goodwill recorded in connection with
the acquisition of Viona, which was being amortized over its estimated useful
life of four years, and, the net book value of all of Viona's furniture and
equipment is included in the net gain on the sale of assets.

LIQUIDITY AND CAPITAL RESOURCES

     Since inception, we have financed our operations primarily through the
issuance and sale of debt and equity securities to investors including our
initial public offering which was completed July 16, 1999. As of March 31, 2001
we had approximately $69.6 million in cash and cash equivalents, including $0.8

                                       29
<PAGE>

million of the proceeds from the sale of our consumer electronics business in
March 2001, which is held in escrow by third parties for indemnification
purposes. Included in other assets is $1.8 million of the proceeds from the sale
of our Internet appliance business, which is held in escrow by third parties for
indemnification purposes until March 2002.

     Net cash used in operating activities for the quarter ended March 31, 2001
was $8 million, compared to cash used in operating activities of $7.1 million
for the quarter ended March 31, 2000. Cash used in operating activities was
primarily the result of net losses, adjusted for non-recurring gains and
non-cash compensation expense.

     Net cash provided by investing activities for the quarter ended March 31,
2001 was $68.0 million, compared to cash used in investing activities of $0.3
million for the quarter ended March 31, 2000. Cash provided by investing
activities for the quarter ended March 31, 2001 consisted primarily of the net
proceeds from the sales of assets related to our consumer electronics and
Internet appliance businesses. Cash used in investing activities for the quarter
ended March 31, 2000 consisted primarily of net purchases of furniture and
equipment.

     Net cash provided by financing activities for the quarter ended March 31,
2001 was attributable to net proceeds received from the exercise of stock
options. Net cash used in financing activities of $0.3 million for the quarter
ended March 31, 2000 was primarily attributable to payments to the former
principals of Viona.

     As of March 31, 2001, our principal commitments consisted of obligations
outstanding under equipment leases. The equipment leasing arrangements consist
primarily of paying rental fees to third party leasing providers at interest
rates between 8% to 18% that maintain title to the leased equipment. In most
cases, there are no obligations for us to purchase the equipment at the end of
the term. Although we have no material commitments for capital expenditures, we
anticipate minimal increases in our capital expenditures as our needs in
operations, infrastructure and personnel arise.

     As of March 31, 2001, we had a $5 million line of credit with Silicon
Valley Bank. Under the terms of the line of credit, borrowings are subject to a
percentage of "eligible" accounts receivable, as defined in the loan and
security agreement, and bear interest at the bank's prime rate (8% at March 31,
2001). In addition, we must:

     .  maintain a tangible net worth as defined in the loan and security
        agreement, of at least $40 million;

     .  maintain a quick ratio, excluding deferred revenue, of at least 2.0 to
        1.0;

     .  supply Silicon Valley Bank within 45 days after the end of each quarter,
        quarterly, unaudited financial statements and compliance certificates.

     At March 31, 2001, no borrowings against this line of credit were
outstanding and $1 million was available under the line of credit. As of March
31, 2001 we were in compliance with all financial covenants to the bank. This
line of credit expires in June 2001. Silicon Valley Bank has a senior security
interest in substantially all of our assets.


                                       30
<PAGE>

     In March 2001, we completed the sale, and we licensed assets related to our
consumer electronics business to STMicroelectronics, NV, a Dutch corporation,
STMicroelectronics, Inc., a Delaware corporation and STMicroelectronics GmbH and
received approximately $55.6 million in cash consideration, of which $0.8
million is being held by a third party in escrow for a period of 18 months for
indemnification purposes.

     In March 2001, we sold the assets of our Internet appliance business,
excluding inventory, to Phoenix Technologies Ltd., a Delaware corporation for
$18 million in cash consideration, of which $1.8 million is being held in escrow
by a third party until March 2002 for indemnification purposes.

     We believe that our current cash and cash equivalents balance and cash
anticipated to be provided by operations, if any, together with any borrowings
available under our line of credit, will be adequate to meet our cash needs for
at least the next twelve months.

                                       31
<PAGE>

ITEM 3:

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We develop products in the United States and sell such products in North
America, Asia and Europe. As a result, our financial results could be affected
by factors such as changes in foreign currency exchange rates or weak economic
conditions in foreign markets. As all sales are currently made in U.S. dollars,
a strengthening of the dollar could make our products less competitive in
foreign markets. We do not use derivative instruments to hedge our foreign
exchange risk. Our interest income is sensitive to changes in the general level
of U.S. interest rates, particularly since the majority of our investments are
in short-term instruments. Due to the nature of our short-term investments, we
have concluded that there is no material market risk exposure. Therefore, no
quantitative tabular disclosures are required.

FACTORS THAT MAY AFFECT FUTURE RESULTS

Our business and the value of our shares is subject to numerous risks. Some of
these risks are described above and certain additional risks are described
below:

Risk Factors

We are currently undergoing a business transition that may adversely affect our
company.

     In March 2001, we announced that we disposed of our consumer electronics
business and our Internet appliance business and that we are seeking strategic
alternatives for our business. In the past, the consumer electronics business
did not generate material sales or profit for us and the Internet appliance
business generated sales but no profit for us.

     The internal and external changes that have and will result from the sales
of our consumer electronics and Internet appliance businesses and our
announcement concerning strategic alternatives may disrupt our employees,
partners, distributors, stockholders and customers and may create a prolonged
period of uncertainty, which could have a material adverse effect on our
business, prospects and financial condition. The disposition of our consumer
electronics business and Internet appliance businesses has resulted in
substantial changes including, among other things, the reduction of our
workforce and our product offerings and has created the need for us to seek a
new strategic focus. Many factors may impact our ability to implement a new
strategic direction for our business including our ability to locate strategic
partners, finalize agreements with other companies, manage the implementation
internally in an effective manner, sustain the productivity of our workforce,
reduce operating expenses and quickly respond to and recover from unforeseen
events associated with our business transition. As a result of this business
transition, it will be difficult to forecast our financial performance. We
expect that both sales and operating income may be adversely affected and we
expect to report operating losses in fiscal 2001.

     In addition, as a result of the disposition of our consumer electronics
business and our Internet appliance business, approximately 89 of our former
employees, including developers, salespeople and employees involved in general
and administrative functions, have terminated their employment with us and have
accepted employment with the purchaser of the consumer electronics business, the
purchaser of the Internet appliance business or elsewhere. We currently have 18
employees in research and

                                       32
<PAGE>

development, 15 employees in sales and marketing and 20 in administration. We
believe that we may need to hire additional employees, particularly in the area
of research and development, in order to create a more diversified product
offering and implement a new strategic focus that will be successful for us.

     Our March announcement regarding our search for strategic alternatives and
the sale of our Internet appliance business and consumer electronics business
may adversely affect our existing relationships with our partners and
distributors and the perception of our company among our customers.

     As part of the sale of our consumer electronics and Internet appliance
businesses, approximately 89 of our employees have accepted employment with
STMicroelectronics or Phoenix Technologies. These employees were dedicated
primarily to research and development activities. The reduction in our research
and development workforce will result in fewer new products being offered by us.
The reduction in our salesforce may result in our sales being adversely
affected.

     Consequently, we may have declining levels of business through our
traditional distribution channels as a result of negatively impacted
relationships with our partners, distributors and customers. There can be no
guarantees that we can maintain or re-establish such relationships or forge new
customer, partner and distributor relationships in a timely manner, or at all,
to overcome any loss of business resulting from our business transition.

We depend upon management to identify appropriate strategic alternatives

     Our ability to identify an appropriate strategic alternative for our
business is substantially dependent upon certain key management personnel,
particularly our President and Chief Executive Officer, Mr. Francis Wilde, and
our Chief Financial Officer, Mr. Thomas Fogarty. The loss of such key management
personnel could have a material adverse effect on our ability to identify
appropriate strategic alternatives and consummate the associated transactions,
if any.

The success of any strategic alternatives we pursue are speculative

     While we intend to seek a variety of strategic alternatives, there can be
no assurance that we will be successful in finding a beneficial strategic
alternative for our stockholders or that we will find any suitable strategic
alternatives. In the event that we choose a new strategic direction for our
company, the success of the resulting business will depend, to a great extent,
on the operations, financial condition and management of the resulting business
and other factors beyond our control. There can be no assurance that we will
find or consummate a strategic alternative that is beneficial to our
stockholders.

There are few, if any, strategic alternatives available to us and there is
intense competition to find beneficial strategic alternatives

     We are and will continue to be an insignificant participant in the market
of companies seeking strategic alternatives. A large number of established and
well financed entities, including venture capital firms, are active in
transactions involving strategic alternatives being considered by us, including
mergers with, or the acquisition of, business entities that may be desirable
candidates for a strategic combination with us. Such competitors may have
significantly greater financial resources, technical expertise, managerial
capabilities and other resources than we do. As a result, we may be at a
competitive disadvantage in identifying and attracting possible strategic
alternatives and successfully completing any related transactions.

                                       33
<PAGE>

The Securities Exchange Act of 1934 imposes significant disclosure requirements
which may deter potential strategic partners from consummating a transaction
with us

     The Securities Exchange Act of 1934 requires companies subject to its
provisions to provide certain information about significant acquisitions,
including certified financial statements for the acquired company or entity,
covering one or two years depending on the size of the acquisition. In the event
that we pursue a business combination with another entity, the time and
additional costs that may be incurred by the target entity to prepare such
statements may significantly delay or preclude consummation of an otherwise
desirable acquisition by us or delay or preclude consummation of a desirable
acquisition of our company or business. Acquisition prospects that do not have
or are unable to obtain the required audited financial statements may not be
appropriate for acquisition so long as the reporting requirements of the
Securities Exchange Act of 1934 are applicable.

We currently have a limited product offering and may not have a diversified
business after a strategic transaction, if any

     Due to the disposition of our consumer electronics business and our
Internet appliance business, we currently have a limited offering of products
that can be used only in personal computers. Pursuant to the terms of our
agreement with STMicroelectronics, we may not participate in significant aspects
of the consumer electronics market prior to March 2006. In the event that we
consummate a market combination with only one other business entity, our ability
to diversify our business into a number of areas may be limited. As a result, we
will be subject to economic pressures within a limited industry which may result
in a materialadverse effect on our business and financial condition.

Certain strategic alternatives may result in a change in control and management
of our company

     In the event that we consummate a business combination transaction
involving the issuance of our common stock, such business combination may result
in a third party obtaining a controlling interest in us. Any such business
combination may require our management to sell or transfer all or a portion of
their shares of our common stock, or resign as our directors and officers. In
addition, the issuance of shares of our common stock in connection with a
business combination would result in the reduction in percentage of shares of
our common stock owned by our current stockholders.

We have a limited operating history and our historical financial information is
of limited value in projecting our future operating results or evaluating our
operating history

     As a result of our relatively brief operating history and because our
business model has changed significantly since inception, we believe that
comparing different periods of our operating results is not meaningful and you
should not rely on the results for any period as an indication of our future
performance. In addition, fluctuations in our operating results have caused, and
may in the future continue to cause us to perform below the expectations of
public market analysts and investors. If our results continue to fall below
market expectations, the price of our common stock may continue to fall
significantly. Our limited operating results have varied widely in the past, and
we expect that they will continue to vary significantly from quarter-to-quarter
as we attempt to establish our products in the market and transition to a new or
different business model.

You should expect our quarterly operating results to fluctuate in future periods
and they may fail to meet the expectations of securities analysts or investors,
which could cause our stock price to decline

                                       34
<PAGE>

       Our revenues and operating results will vary significantly from quarter-
to-quarter due to a number of factors, including:

     .  variations in demand for our products and services, which are relatively
        few in number;

     .  the timing of sales of our products and services and the timing of new
        releases of personal computer systems and semiconductors that
        incorporate our products;

     .  delays in introducing our products and services;

     .  changes in our pricing policies or the pricing policies of our
        competitors;

     .  the timing and accuracy of royalty reports received from our customers,
        which we have not audited to date;

     .  the timing of large contracts that materially affect our operating
        results in a given quarter;

     .  changes in the usage of digital media;

     .  our ability to develop and attain market acceptance of enhancements to
        our products;

     .  new product introductions by competitors;

     .  the mix of license, service and hardware revenues;

     .  unanticipated customer demands which impact on our ability to deliver
        our products and ultimately recognize revenue;

     .  the mix of domestic and international sales;

     .  costs related to acquisitions of technologies or businesses;

     .  our ability to attract, integrate, train, retain and motivate a
        substantial number of sales and marketing, research and development,
        administrative and product management personnel;

     .  our ability to expand our operations; and

     .  global economic conditions as well as those specific to personal
        computer, peripherals and semiconductor manufacturers and other
        providers of digital video and audio stream management solutions.

     We receive either a flat fee from OEMs or a license royalty for each
personal computer or peripheral sold that contains our products and a royalty
for each silicon device sold by a semiconductor manufacturer that incorporates
our technology. In collecting these fees, preparing our financial reports,
projections and budgets and in directing our sales efforts and product
development, we rely on our customers to accurately report the number of units
sold. We have never undertaken an audit of any of our customers to verify that
their reported sales unit numbers were accurate. These reports are subject to
potential revision by these manufacturers. If any of our customers revised their
product sales reports, we

                                       35
<PAGE>

might be required to adjust our revenues for subsequent periods, which could
harm our business and the price of our common stock.

     We determine our operating expenses largely on the basis of anticipated
revenue trends and a high percentage of our expenses are fixed in the short term
and are significant. As a result, any delay in generating or recognizing revenue
could cause significant variations in our operating results from
quarter-to-quarter and could result in substantial operating losses.

     Due to the foregoing factors, we believe that quarter-to-quarter
comparisons of our operating results are not a good indication of our future
performance. In future quarters, our operating results may be below the
expectations of public market analysts and investors. In this event, the price
of our common stock may fall significantly.

We face inventory risks that may be increased by our business shift away from
the Internet appliance business.

     As of March 31, 2001, we have approximately $22.9 million of inventory, the
majority of which was acquired from May through October 2000 to support
production of our Internet appliance hardware designs. This inventory was
purchased to accommodate long lead times for components in order to meet the
anticipated demand for our Internet appliance products (the Internet screen
phone, set-top box, and Nucleo platform). The sale of our Internet appliance
business included the assignment of our Internet appliance customer contracts,
but not the inventory to support production of the associated products. While we
have obtained assurances that we will be the preferred supplier of inventory to
Phoenix Technologies Ltd. for these products, we may not be able to sell all of
the inventory that we currently have. Furthermore, even if our efforts to sell
this inventory are successful, we may not be able to recover the full cost of
the inventory due to market price fluctuations and other market conditions.

We have limited profitability and may never achieve profitability in the future

     We had a net loss from operations of approximately $9.7 million for the
period ending March 31, 2001. To date, we have not achieved profitability on an
annual basis and revenues from our software and hardware design solutions may
not result in sufficient revenues to sustain profitability in any future period.
In addition, we cannot be certain that we can increase profitability,
particularly to the extent that we face price competition. As a result, we will
need to generate significant revenues to attain profitability.

Increasing competition may cause our prices to decline, which would harm our
operating results

     We expect our prices for our digital entertainment products to decline over
the next few years. We expect to face increased competition in markets where we
license our digital entertainment products, which will make it more difficult to
maintain our prices and profit margins even if our sales volumes increase. If
anticipated increases in sales volume do not keep pace with anticipated pricing
pressures, our revenues would decline and our business could be harmed. Despite
our efforts to introduce enhancements to our products, we may not be successful
in maintaining our pricing.

Our business significantly depends upon our CineMaster products, and it is
uncertain whether the market will continue to accept these products

     In the period ending March 31, 2001, we derived approximately 83% of our
license revenues from sales of devices incorporating our CineMaster products. We
expect that license revenues from our CineMaster products will continue to
account for a significant portion of our revenues for the foreseeable

                                       36
<PAGE>

future. In particular, our business will be harmed if our existing manufacturing
customers do not continue to incorporate our CineMaster products or if we are
unable to obtain new customers for our CineMaster products. In seeking market
acceptance, it may be difficult for our digital solutions to displace incumbent
solutions employed by manufacturers not currently licensing our CineMaster
products. Manufacturers that are using other solutions would need to invest in
additional training and development tools and convert software for existing
hardware solutions in order to change to a new digital solution. Accordingly,
potential customers may not accept our digital solutions, which could limit our
growth opportunities and harm our prospects.

The loss of a single customer could significantly harm our business because a
majority of our revenues is derived from a small number of customers

     A substantial portion of our license revenues comes from a small number of
customers. In the period ending March 31, 2001, three customers accounted for
69% of our total revenues and 74% of our gross profit. We expect a relatively
small number of customers to account for a majority of our revenues and gross
profit, if any, for the foreseeable future. The loss of any of these or other
primary customers, or a material decrease in revenue from these customers, would
immediately harm our business. As a result of the asset sales by us to
STMicroelectronics and Phoenix, we transferred substantially all of our
customers in the consumer electronics market including Microsoft Corporation,
Funai Electric Co., Ltd., and Cyber Home Entertainment. Customers transferred in
the Internet appliance market included IPM S.p.A., Wongs Electronics Co., Ltd.,
and ePlanet S.p.A.

Since most of our revenue is derived from a small number of customers, problems
those customers experience will directly impact our business

     As a result of our concentrated customer base, problems that our customers
experience could materially harm our business. These risks are beyond our
control. For example, because we do not control the business practices of our
customers, we do not influence the degree to which they promote our technology
or set the prices at which the products incorporating our technology are sold to
end users. Risks that may influence the success or failure of the personal
computer manufacturers that are our customers include:

 .    the competition the manufacturer faces and the market acceptance of its
     products;

 .    the engineering, marketing and management capabilities of the manufacturer
     and the technical challenges unrelated to our technology that it faces in
     developing its products;

 .    the financial and other resources of the manufacturer;

 .    new governmental regulations or changes in taxes or tariffs applicable to
     the manufacturer; and

 .    the failure of third parties to develop and introduce content for digital
     entertainment applications in a timely fashion.

The inability of our customers or us to successfully address any of these risks
could harm our business.

Since our customers have not executed long-term contracts with us, our revenues
could decline significantly with little or no notice

                                       37

<PAGE>

     Our agreements with our customers are typically of limited duration and do
not contain minimum purchase commitments or are terminable with little or no
notice. Rather than long-term contracts, we typically enter into licensing
agreements with one-year terms that automatically renew each subsequent year
unless either party receives a written cancellation. As a result, many of our
customers could elect not to renew these agreements and we could have little
warning of this election. Also, since our agreements with our customers do not
include minimum purchase requirements, the demand for our products is
unpredictable. As a result of competition or fluctuations in demand, we could be
required to reach an accommodation with our customers with respect to
contractual provisions such as price or delivery time in order to obtain
additional business and maintain our customer relationships. Any termination,
decrease in orders or election not to renew a contract by our principal
customers would harm our business.

We depend upon technology licensed from third parties, and if we do not maintain
these license arrangements, we will not be able to ship many of our products and
our business will be seriously harmed

     We license technology that is used in our products from third parties under
agreements with a limited duration and we may not be able to maintain these
license arrangements. If we fail to maintain our license arrangements, we would
not be able to ship many of our digital entertainment products and our business
would be seriously harmed. For example, we have a license agreement with Dolby
Laboratories Licensing Corporation for the audio format that is used in all of
our DVD-related products. Without this technology, we could not ship product for
DVD markets. In addition, we license encryption and decryption software
technology from Matsushita Electric, which must also be included in any DVD
products we ship. The license for the Dolby Digital technology is for a term
expiring at the expiration of the patent covered thereby with the furthest
expiration date from the date of the license. The license for the encryption and
decryption technology may be terminated by Matsushita at any time upon written
notice. We may not be able to renew either license. If we failed to renew either
of these licenses, we would not be able to ship products for the DVD market, and
we would accordingly lose a substantial portion of our revenue.

The loss of any of our strategic relationships would make it more difficult to
keep pace with evolving industry standards and to design products that appeal to
the marketplace

     We rely on strategic relationships, such as those with ATI Technologies
Inc., Dolby Laboratories, Intel Corporation, STMicroelectronics, Inc. and
Phoenix Technologies, Ltd. to provide us with state of the art technology,
assist us in integrating our products with leading industry applications and
help us make use of economies of scale in manufacturing and distribution.
Through our relationships with our strategic partners, we gain valuable insights
on evolving industry standards and trends. For example, we may be able to learn
about future product lines in advance so that we can more efficiently design
products that our customers find valuable. However, we do not have written
agreements with all of our strategic partners that can ensure these
relationships will continue for a significant period of time. All of our
agreements with these partners are informal, and may be terminated by them at
any time. The loss of any one of these relationships could harm our business.

Delays in providing our products to our customers may affect how much business
we receive

     Our product development efforts may not be successful and we may encounter
significant delays in bringing our products to market. Since the product life
cycle in the personal computer industry can be as short as six to twelve months
or less, if our product development efforts are not successful or are
significantly delayed, our business will be harmed. In the past, we have failed
to deliver new products, upgrades or customizations on time, including
customization projects for DVD products that are requested from time to time by
our customers. In the future, our efforts to remedy this situation may not

                                       38
<PAGE>

be successful and we may lose customers as a result. Delays in bringing to
market new products, enhancements to old products or interfaces between existing
products and new models of personal computers could be exploited by our
competitors. If we were to lose market share as a result of lapses in our
product management, our business would be harmed.

Our business model depends upon licensing our intellectual property, and if we
fail to protect our proprietary rights, our business could be harmed

     Our ability to compete depends substantially upon our internally developed
technology. We have a comprehensive program for securing and protecting rights
in patentable inventions, trademarks, trade secrets and copyrightable materials.
If we are not successful in protecting our intellectual property, our business
could be substantially harmed.

Our pending patents may never be issued, and even if issued, may provide us with
little protection.

     We regard the protection of patentable inventions as important to our
future opportunities. We currently have six U.S. patent applications pending
relating to our digital video stream management technology. However, none of our
technology is patented outside of the United States nor do we currently have any
international patent applications pending. It is possible that:

     .    our pending patent applications may not result in the issuance of
          patents;

     .    our patents may not be broad enough to protect our proprietary rights;

     .    any issued patent could be successfully challenged by one or more
          third parties, which could result in our loss of the right to prevent
          others from exploiting the inventions claimed in those patents;

     .    current and future competitors may independently develop similar
          technology, duplicate our products or design around any of our
          patents; and

     .    effective patent protection, if any, may not be available in every
          country in which we do business.

We rely upon trademarks, copyrights and trade secrets to protect our proprietary
rights, which are only of limited value

     We rely on a combination of laws, such as copyright, trademark and trade
secret laws, and contractual restrictions, such as confidentiality agreements
and licenses, to establish and protect our proprietary rights. We currently have
two pending trademark applications for the marks "RAVISENT" and "RAVISENT
Technologies". We also have an issued U.S. trademark for the mark "CineMaster,"
and have a number of pending trademark applications for "RAVISENT" in foreign
countries. Moreover, despite any precautions which we have taken:

     .    laws and contractual restrictions may not be sufficient to prevent
          misappropriation of our technology or deter others from developing
          similar technologies;

     .  other companies may claim common law trademark rights based upon state
        or foreign law which precede our federal registration of such marks;

                                       39
<PAGE>

     .  current federal laws that prohibit software copying provide only limited
        protection from software "pirates," and effective trademark, copyright
        and trade secret protection may be unavailable or limited in certain
        foreign countries;

     .  policing unauthorized use of our products and trademarks is difficult,
        expensive and time-consuming and we are unable to determine the extent
        to which piracy of our products and trademarks may occur, particularly
        overseas;

     .  we have provided our source code for our products to a few of our
        customers as part of our licensing arrangements with them and the
        procedures and practices implemented under the terms of these licenses
        may not be sufficient to prevent them from exploiting the source code;
        and

     .  the tamper-resistant copy protection codes in our software have been
        broken in the past and may not be successful in preventing unauthorized
        use of our software in the future.

We may become involved in costly and time-consuming litigation over proprietary
rights

     Substantial litigation regarding intellectual property rights exists in our
industry. We expect that software and hardware in our industry may be
increasingly subject to third party infringement claims as the number of
competitors grows and the functionality of products in different areas of the
industry overlap. Third parties may currently have, or may eventually be issued,
patents that would be infringed by our products or technology. We cannot be
certain that any of these third parties will not make a claim of infringement
against us with respect to our products and technology.

     Any litigation, brought by others or by us, could result in the expenditure
of significant financial resources and the diversion of management's time and
efforts. In addition, litigation in which we are accused of infringement may
cause product shipment delays, require us to develop non-infringing technology
or require us to enter into royalty or license agreements even before the issue
of infringement has been decided on the merits. If any litigation were not to be
resolved in our favor, we could become subject to substantial damage claims and
be prohibited from using the technology at issue without a royalty or license
agreement. These royalty or license agreements, if required, might not be
available on acceptable terms, or at all, and could result in significant cost
and, harm our business. If a successful claim of infringement is made against us
and we can not develop non-infringing technology or license the infringed or
similar technology on a timely and cost-effective basis, our business could be
significantly harmed.

We have received notices of claims that may result in litigation.

From time to time, we have received, and we expect to continue to receive,
notice of claims of infringement of other parties' proprietary rights. For
example:

     .    Our digital video stream management solutions comply with industry DVD
          specifications, which incorporates technology known as MPEG-2 that
          governs the process of storing a video input in digital form. We have
          received notice from two of our largest customers that a third party
          with a history of litigating its proprietary rights and which has
          substantial financial resources has alleged that aspects of MPEG-2
          technology infringe upon patents held by the third party. These
          customers may in the future seek compensation or indemnification from
          us arising out of the third party claims and we may be required to
          agree to indemnify them to secure future business or otherwise.
          Moreover, we may be required to pay license fees in connection with
          the use of the third party's technology in the future.


                                       40
<PAGE>

     .  A group of companies has formed a consortium known as MPEG-LA to
        enforce the proprietary rights of other holders of patents covering
        essential aspects of MPEG-2 technology that are incorporated into our
        products. MPEG-LA has notified a number of personal computer
        manufacturers, including our customers, that patents owned by members
        of the consortium are infringed by the personal computer manufacturers
        in their distribution of products that incorporate the MPEG-2
        technology. MPEG-LA has requested that these personal computer
        manufacturers pay license fees for the use of the technology covered
        by MPEG-LA patents. These personal computer manufacturers may in the
        future seek compensation or indemnification from us arising out of the
        MPEG-LA claims, and we may be required to pay license fees in
        connection with the use of MPEG-2 technology in the future.

     .  Another group of companies has formed a consortium known as "6C"
        (formerly DVD Patent Licensing Program) to enforce the proprietary
        rights of other holders of patents covering essential aspects of DVD
        technology that are incorporated into our products. 6C has notified us,
        as well as a number of computer manufacturers and other companies
        manufacturing or licensing DVD-related products, including our
        customers, that patents owned by members of the consortium are infringed
        by products that incorporate the DVD technology. 6C has requested that
        these personal computer manufacturers pay license fees for using the 6C
        patents. We may be required to pay license fees in connection with the
        use of such DVD technology in our products in the future as a result of
        such claims. Further, a court could determine that we infringe any such
        patents and we would be liable for resulting damages. In addition, our
        customers who have been contacted by the 6C may in the future seek
        compensation or indemnification from us arising out of the 6C claims,
        and we may be required to pay license fees on their behalf in connection
        with the use of such DVD technology in the future.

     .  A third party has asserted that the parental control features of our
        CineMaster products infringe patents held by the third party. A court
        could determine that such parental control features do infringe these
        patents and we could be liable for resulting damages. In addition, our
        customers could seek compensation or indemnification from us arising out
        of such third party's claims.

     .  Another consortium of companies, commonly known as "3C", notified a
        number of DVD product manufacturers that the members of the consortium
        hold patents that are essential to DVD technology, and have requested
        that such companies pay license royalties for the use of the technology
        covered by the 3C patents. In addition, our customers may seek
        compensation or indemnification from us as a result of the 3C claims. 3C
        members may in the future seek compensation or indemnification from us
        arising out of the consortium's claims.

     .  A letter dated September 12, 2000 from a third party to one of our
        customers who distributes our product claims infringement of a Japanese
        utility model patent regarding Internet terminal which can be coupled to
        a television set. This third party is seeking a license agreement as a
        resolution. We have requested more time to respond and are accumulating
        prior art to invalidate the utility model patent.

     .  We received a letter dated April 23, 2001 from a third party that
        states, in pertinent part:

        "[We] own a valuable patent portfolio in the field of all format
     decoders [("AFD")]. Enclosed is a patent list with regard to our
     representative patents on AFDs which should be of particular interest to
     you.

        Based upon available information, it appears that some of your products
     are covered by [our] patents. [We] would like to discuss this matter with
     your company.

        The letter enclosed a list of the patent numbers for 12 issued U.S.
patent numbers. The list also stated that there were two pending applications.
The letter also included the contact information for a representative from this
third party, and invited us to discuss the matter with the representative. The
third party may seek compensation from us related to this matter. We do not know
if this party has contacted any of our customers regarding this matter. If so,
our customers may in the future seek compensation or indemnification from us
arising out of the third party's claims. No claim for such payments has been
made to date. We have not determined whether and to what extent that the patents
held by the third party are valid and whether and to what extent our products
are covered by their patents.

     Any of these notices could result in litigation, which would include all of
the risks discussed above.

We may not be able to profit from growth in our business if we are unable to
effectively manage such growth


                                       41
<PAGE>

     Our ability to successfully offer our products and services in rapidly
evolving markets requires an effective planning and management process. We have
limited experience in managing rapid growth. In the last several months, we have
hired new engineering, sales, marketing, administrative and other management
personnel. Our business will suffer dramatically if we fail to manage our
growth. On March 31, 2001 we had a total of 51 employees compared to a total of
157 employees on March 31, 2000. Following the closing of the sale of our
Internet appliance and consumer electronics business, we have a total of
53 full-time employees, 18 of whom are engaged in research and
development, 15 in sales and marketing and 20 in administration. The growth we
have experienced so far has placed strains on our managerial, financial and
personnel resources. We expect these strains to continue in the future. The
combination of growth and the complexity of the technology involved in our
products, demands an unusual amount of focus upon the operational needs of our
customers for quality, reliability, timely delivery and post-installation field
support. Our existing licenses rely heavily on our technical expertise in
customizing our digital solutions to their new products. In addition,
relationships with new manufacturing customers generally require significant
engineering support. Therefore, any increases in the adoption of our products by
existing or new customers will increase the strain on our resources, especially
our engineers. To reach our goals, we will need to continue hiring while, at the
same time, investing in our infrastructure. We will also need to increase the
scale of our operations. In addition, we will need to:

     .    successfully train, motivate and manage new employees; expand our
          sales and support organization;

     .    integrate new management and employees into our overall operations;
          and

     .    adopt and staff an investor relations program.

     We may not succeed in anticipating all of the changing demands that growth,
if any, will impose on our systems, procedures and structure. Our failure to
effectively manage our expansion may result in a material adverse effect on our
business financial condition and results of operations.

We may not be able to successfully make acquisitions of or investments in other
companies

     We have very limited experience in acquiring or making investments in
companies, technologies or services. From time to time we have had discussions
with companies regarding our acquiring, or investing in, their businesses,
products or services. In the future, we may make acquisitions or investments in
other companies, products or technologies. Acquisitions in our industry are
particularly difficult to assess because of the rapidly changing technological
standards in our industry. If we make any acquisitions, we will be required to
assimilate the personnel, operations and products of the acquired businesses and
train, retain and motivate key personnel from the acquired businesses. However,
the key personnel of the acquired company may decide not to work for us.
Moreover, acquisitions may cause disruptions in our operations and divert
management's attention away from day-to-day operations, which could impair our
relationships with our current employees, customers and strategic partners. We
may be unable to maintain uniform standards, controls, procedures and policies
if we fail in our efforts to assimilate acquired businesses, which could result
in a material adverse effect on our business.

We are dependent upon our key management for our future success, and few of our
managers are obligated to stay with us

     Our success depends on the efforts and abilities of our senior management
and certain other key personnel. Many of our key employees are employed at will.

                                       42
<PAGE>

If any of these or other key employees left or was seriously injured and unable
to work and we were unable to find a qualified replacement, then our business
could be harmed. We have recently hired new managers and may hire key management
personnel as needed. We may not be able to successfully assimilate our recently
hired managers or to hire qualified key management personnel to replace them.

We may not be able to hire and retain qualified employees, which would impair
our ability to grow.

     As a result of our asset sales to Phoenix Technologies and
STMicroelectronics, our workforce has been reduced by approximately 89
employees, including 70 employees in our research and development department and
9 employees in our sales and marketing department. Although our need for
employees has been reduced as a result of the disposition of our consumer
electronics business and our Internet appliance business, we have vacancies in
several positions in our research and development group. Competition for these
individuals is intense, and we may not be able to attract, assimilate or retain
additional highly qualified personnel in the future. Hiring qualified personnel,
particularly sales, marketing, engineering and product management personnel, is
very competitive in our industry due to the limited number of people available
with the necessary technical skills and understanding of the digital video and
audio stream management industry. In addition, we are headquartered in Malvern,
Pennsylvania and we maintain operations in San Jose, California. We have in the
past and expect in the future to face difficulties locating qualified personnel
in these locations. We have had, and expect to continue having greater
difficulty attracting such personnel with equity incentives as a public company
than we did as a privately held company.

We may be subject to product returns, product liability claims and reduced sales
because of defects in our products

     Our products are very complex and frequently contain undetected errors. The
likelihood of errors is higher when a new product is introduced or when new
versions or enhancements are released. Errors may also arise as a result of
defects in the products into which our products are incorporated. Despite our
extensive quality assurance process, we have in the past shipped product
releases with some defects, and have discovered other errors in our products
after their commercial shipment. Despite our quality assurance process and that
of our customers, defects and errors may be found in new products or in new
versions or enhancements of existing products after commercial shipment has
begun. We may be required to devote significant financial resources and
personnel to correct any defects. Known or unknown errors or defects that affect
the operation of our products could result in the following, any of which could
harm our business:

     .    delay or loss of revenue;

     .    cancellation of customer contracts;

     .    diversion of development resources;

     .    damage to our reputation;

     .    failure of our products to achieve market acceptance;

     .    increased service and warranty costs; and

     .    litigation costs.

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<PAGE>

     Although some of our licenses with customers contain provisions designed to
limit our exposure to potential product liability claims, these contractual
limitations on liability may not be enforceable. In addition, our product
liability insurance may not be adequate to cover our losses in the event of a
product liability claim resulting from defects in our products and may not be
available to us in the future.

Our business is subject to risks from international operations such as legal
uncertainty, tariffs and trade barriers and political and economic instability

     In the quarter ended March 31, 2001, we derived approximately 36% of our
revenues from sales to foreign companies, and we may derive an increasing amount
of our revenue from sales outside North America in the future. We have limited
experience in marketing and distributing our products internationally. In
addition, there are many risks inherent in doing business internationally
including, among others:

     .    legal uncertainty regarding liability;

     .    tariffs, trade barriers and other regulatory barriers;

     .    problems in collecting accounts receivable;

     .    political and economic instability;

     .    changes in diplomatic and trade relationships;

     .    seasonal reductions in business activity;

     .    potentially adverse tax consequences;

     .    the impact of recessions in economies outside the United States; and

     .    complexity and unexpected changes in local laws and regulations.

     Our licensees are subject to many of the risks described above with respect
to their manufacturing or end-user customers. Currently, all of our
international sales are denominated in U.S. dollars; therefore, a strengthening
of the dollar could make our products less competitive in foreign markets. We do
not use derivative instruments to hedge foreign exchange risk. In the future, we
may conduct sales in local currencies, in which case, changes in exchange rates
could adversely affect our operating results. In addition, if we conduct sales
in local currencies, we may engage in hedging activities, which may not be
successful and could expose us to additional risks.

It may be difficult to raise needed capital in the future, which could
significantly harm our business

     We may require substantial additional capital to finance our future growth
and fund our ongoing research and development activities beyond 2001. Our
capital requirements will depend on many factors, including:

     .    the results of our search for strategic alternatives;

     .    acceptance of and demand for our products;

                                       44
<PAGE>

     .    the number and timing of acquisitions;

     .    the costs of developing new products;

     .    the costs associated with our expansion; and

     .    the extent to which we invest in new technology and research and
          development projects.

     To the extent that the proceeds from our initial public offering and the
dispositions of our consumer electronics and Internet appliance businesses are
exhausted, and if our existing sources of cash and cash flow from operations, if
any, are insufficient to fund our activities, we may need to raise additional
funds. If we issue additional stock to raise capital, your percentage ownership
in RAVISENT would be reduced. Additional financing may not be available when
needed and, if such financing is available, it may not be available on terms
favorable to us.

Certain provisions of our certificate of incorporation and by-laws make changes
of control difficult even if they would be beneficial to shareholders

     The board of directors has the authority without any further vote or action
on the part of the stockholders to issue up to 5,000,000 shares of preferred
stock and to determine the price, rights, preferences, privileges and
restrictions of the preferred stock. This preferred stock, if it is ever issued,
may have preference over and harm the rights of the holders of common stock.
Although the issuance of this preferred stock will provide us with flexibility
in connection with possible acquisitions and other corporate purposes, this
issuance may make it more difficult for a third party to acquire a majority of
our outstanding voting stock. We currently have no plans to issue preferred
stock.

     Our certificate of incorporation and by-laws include provisions that may
have the effect of deterring an unsolicited offer to purchase our stock. These
provisions, coupled with the provisions of the Delaware General Corporation Law,
may delay or impede a merger, tender offer or proxy contest involving us.
Furthermore, our board of directors is divided into three classes, only one of
which is elected each year. Directors are only capable of being removed by the
affirmative vote of 66 2/3% or greater of all classes of voting stock. These
factors may further delay or prevent a change of control.

Our revenues are dependent upon acceptance of products that incorporate our
digital entertainment technology only in the personal computer industry

We rely on the personal computer industry, which has risks and uncertainties
that are beyond our control.

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<PAGE>

     The personal computer industry is presently the only market for our digital
entertainment solutions. In addition, we are subject to a non-competition
agreement with STMicroelectronics pursuant to which we have agreed to not
compete in significant aspects of the consumer electronics market until March
2006. As a result, our results of operations will depend almost entirely on
consumer acceptance of the personal computer. Our dependence on these industries
involves several risks and uncertainties, including:

     .    whether semiconductor manufacturers developing silicon devices for
          personal computer manufacturers will design our digital solutions into
          their devices and successfully introduce these devices;

     .    changes in consumer requirements and preferences for personal
          computers;

     .    the small number of product manufacturers in the personal computer
          industry and the short product life cycles which can be six months or
          less; and

     .    the difficulty in predicting the level of consumer interest in and
          acceptance of many digital product applications employing our products
          that employ our technology.

     Any general economic, business or industry conditions that cause customers
or potential customers to reduce or delay their investments in personal computer
systems could have a negative effect on our strength and profitability. For
example, a softening of demand for computer systems may result in decreased
revenues (or at least declining revenue growth rates) for computer manufacturers
in general which could have a corresponding negative impact on our sales. In
turn, a decrease in our sales could result in pricing pressures for our
products, which could have a negative effect on our revenues and profitability.
Recently, personal computer manufacturers have experienced a slowdown in sales
of personal computers, which may result in a material adverse affect on the
sales of our products.

We are subject to a non-competition agreement prohibiting us from selling
products in significant aspects of the consumer electronics market.

     Our agreement with STMicroelectronics, pursuant to which we sold our
consumer electronics market, provides that we may not compete in significant
aspects of the consumer electronics business until March 2006. Traditional
consumer electronics manufacturers have introduced stand-alone Internet access
devices for the television. Recently, personal computer manufacturers have
announced major initiatives in providing their own versions of stand-alone
Internet devices in an effort to combat the consumer electronic manufacturers
initiatives. An increase in the demand for certain consumer electronics products
may result in a corresponding decrease in the demand for personal computer
products employing our technology which may have a material adverse effect on
our business and financial condition.

We currently depend upon demand for digital entertainment products, which may
not be sustained.

     Our success currently depends upon continued demand for digital
entertainment products in the personal computer market. All of our revenues in
1998 and 1999 resulted from sales of digital entertainment products. In 2000 a
significant portion of our revenues were derived from sales of digital

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<PAGE>

entertainment products. In addition to the risks inherent in the personal
computer industry, the market for digital entertainment products also contains
risk and uncertainties, including:

     .    the development and marketing of content by third party content
providers for end-user systems such as desktop computers in a format compatible
with our digital solutions; and

     .    the potential for declining demand for DVD solutions in lower price
personal computers.

     Factors negatively affecting the personal computer industry in general or
the DVD market in particular could harm our business. Moreover, to the extent
that the performance, functionality, price and power characteristics of our
digital solutions fail to satisfy customers who have a critical need for
specific digital applications, the use of our digital solutions could become
confined to a limited segment of these industries.

Competition in our markets is likely to continue to increase and could harm our
business

     We compete in markets that are new, intensely competitive, highly
fragmented and rapidly changing and which are characterized by short product
life cycles and price erosion. Our principal competitors in the software-based
digital solution market are Mediamatics, Inc. (a subsidiary of National
Semiconductor, Inc.), MGI Software Corp., Intervideo Inc. and RealNetworks, Inc.
Our principal competitors in the hardware-based digital solution market are
Sigma Designs, Inc. and Zoran Corporation. We also compete against several
smaller companies and with the internal research and development departments of
other software companies as well as those of personal computer, peripherals, and
semiconductor manufacturers who are in the market for specific digital video or
audio software applications. Many of our competitors have a larger customer
base, greater name recognition, greater financial, technical, managerial and
other resources than us. Numerous other major personal computer manufacturers,
software developers and other companies are focusing significant resources on
developing and marketing products and services that will compete with our
CineMaster products. Companies such as Liberate Technologies, Spyglass, Inc.,
Planetweb, Inc. and WebTV also compete indirectly with us by providing digital
video and other solutions to Internet appliance manufacturers who compete with
our customers or personal computer manufacturers. At least two semiconductor
manufacturers, including C-Cube Microsystems and Zoran, are positioning their
products as offering hardware-based digital video and audio management
capabilities and marketing such products as equal or superior to our CineMaster
products. In the future, operating system providers with a larger established
customer base, such as Microsoft, may enter the digital video or audio stream
management markets by building video or audio stream management applications
into their operating systems. For example, Microsoft currently markets a basic
MPEG-1 compliant digital solution that is bundled into its operating system,
which is used by a substantial number of personal computer users. If Microsoft
were to successfully develop or license a DVD-compliant digital video solution
and incorporate the solution into its operating system, our revenues could be
substantially harmed.

     We anticipate continued growth and competition in the personal computer
industry and the entrance of new competitors into our market, and accordingly,
the market for our products will remain intensely competitive. We expect that
competition will increase in the near term and that our primary long-term
competitors may not yet have entered the market. Our future competitors may have
significantly more personnel or greater financial, technical, marketing and
other resources than either we or our current competitors do. Furthermore, our
current and future competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements than we can. Also,
future competitors may have greater name recognition and more extensive customer
bases that they can

                                       47
<PAGE>

leverage. Increased competition could result in price reductions, fewer customer
orders, reduced gross profit margins and loss of market share, any of which
could harm our business.

If we fail to manage technological change, respond to evolving industry
standards or enhance our products' interoperability with the products of our
customers, demand for our products will decrease and our business will suffer

     Future versions of software and hardware platforms employing new
technologies or the emergence of new industry standards could render our
products obsolete or uncompetitive. The market for digital video and audio
solutions is characterized by rapid technological change and evolving industry
standards, such as standards for DVD audio, DVD random access memory and DTV as
well as other digital entertainment applications. If we fail to respond to
evolving industry standards, our products could rapidly become obsolete, which
would harm our business. If the characteristics of our digital solutions are not
compatible with the requirements of specific system or program applications, the
likelihood that our customers will design our products into their systems and
devices will decrease and our business will be harmed.

We may not be able to respond to rapidly changing consumer preferences

     Our results of operations will depend on the extent to which our products
are incorporated into the products of leading personal computer, peripherals and
semiconductor manufacturers. Their willingness to incorporate our products
depends upon whether we succeed in developing enhancements and new generations
of our software and hardware that satisfy consumer preferences in their markets
and introducing these new technologies to the marketplace in a timely manner. We
must constantly modify and improve our products to keep pace with changing
consumer preferences. For example, DVD drives became widespread on new personal
computers in the last two years. It is particularly difficult to keep pace with
changing consumer preferences in the personal computer industry as a result of a
number of factors, including:

     .    the difficulty of anticipating and responding in a timely manner to
          the latest consumer trends and requirements;

     .    the introduction by our competitors of new products embodying popular
          new technologies or features that appeal to consumers; and

     .    the significant investment that is often required before commercial
          viability is achieved to market a new feature or function.

     Any failure by us to adequately address these risks could render our
existing digital solutions obsolete and could harm our business. In addition, we
may not have the financial and other resources necessary to develop any
enhancements or new generations of technology that generate revenue in excess of
the costs of development.

We face risks from the uncertainties of any future governmental regulation

     We are not currently subject to direct regulation by any domestic or
foreign governmental agency, other than regulations applicable to businesses
generally. However, due to the increasing popularity and use of digital delivery
mediums, it is possible that future laws and regulations may be adopted that
regulate the digital media market or other markets in which our products are
sold. Future regulatory measures may include, among other things:

                                       48
<PAGE>

     .    pricing;

     .    content;

     .    copyrights;

     .    export controls (particularly regarding data encryption);

     .    distribution; and

     .    characteristics and quality of products and services.

     The growth and development of the digital media market may prompt calls for
more stringent consumer protection laws that may impose additional burdens on
those companies conducting business in this segment. The adoption of any
additional laws or regulations may decrease the expansion of this market and
harm our business. Our business could be harmed by any new legislation or
regulation, the application of laws and regulations from jurisdictions whose
laws do not currently apply to our business, or the application of existing laws
and regulations to the digital media market.

PART II: OTHER INFORMATION

Item 1: LEGAL PROCEEDINGS

Legal Proceedings

     On or about August 10, 2000, Corum Group, Ltd. filed an action against us
and Cinax Designs Inc. in the United States District Court for the Western
District of Washington (No. C00-1352D). Corum, a business consultant, alleges
that it had an agreement with Cinax whereby Cinax would pay Corum an 8%
"transaction fee" in the event Corum located a purchaser for Cinax. We acquired
Cinax by agreement dated as of July 13, 2000 for compensation of $3.5 million in
cash and an aggregate of 825,000 shares of our common stock and non-voting
exchangeable preferred stock of one of our subsidiaries, Ravisent British
Columbia Inc., which preferred stock is exchangeable, on a one-for-one basis,
into shares of our common stock. In the complaint Corum alleges that it
introduced us to Cinax and that it is therefore entitled to $281,362 and 66,000
shares of our common stock. As part of our acquisition of Cinax, the
shareholders of Cinax agreed to indemnify us for 50% of any liability stemming
from the Corum claim and an aggregate of 53,500 shares of our common stock and
non-voting exchangeable preferred stock of Ravisent British Columbia Inc. have
been placed in escrow to secure this indemnification obligation. The parties
attended a voluntary mediation session on January 22, 2001, and a trial date had
been set for October 9, 2001. On April 17, 2001, the parties entered into a
settlement and release agreement whereby the Company agreed to pay cash and
issue shares of RAVISENT common stock to Corum in full settlement of the matter.
The amount in settlement was accrued in full as of March 31, 2001.

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<PAGE>

     Between February and April 2000, eleven class action lawsuits were filed
against us and certain of our current and former officers and directors in the
United States District Court for the Eastern District of Pennsylvania. On May
25, 2000, the cases were consolidated under Civil Action No. 00-CV-1014, and
entitled "In re RAVISENT Technologies, Inc. Securities Litigation". Pursuant to
the court's consolidation order, a consolidated and amended class action
complaint was filed on June 14, 2000 with an alleged class period of July 15,
1999 through April 27, 2000. This complaint alleges violations of the federal
securities laws, specifically Sections 11 and 15 of the Securities Act of 1933,
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5
promulgated thereunder and seeks unspecified damages on behalf of a purported
class of purchasers of our stock during the period stated above. On July 3,
2000, we filed a motion to dismiss the consolidated and amended class action
complaint. The motion is presently fully briefed and the parties are awaiting a
hearing date to be set for the motion.

     Certain of our employees and certain holders of 5% or more of our common
stock are members of the putative classes alleged in these actions and therefore
may have interests adverse to us with respect to the alleged claims in these
actions.

     We believe that this lawsuit is without merit and that we have meritorious
defenses to the actions. We plan to vigorously defend the litigation. However,
failure to successfully defend these actions could substantially harm our
results of operations, liquidity and financial condition.

     A third party who licenses software to us filed recently a lawsuit against
us in California. The dispute arose out of a contract whereby we licensed
software from this third party for use with the eSurfer browser bundled with our
Internet set-top box, assets recently sold to Phoenix Technologies, Ltd. The
third party claims there are fees due and owing under the contract. We dispute
the amounts this third party claims to be due. Since the complaint was filed
only recently, we have not filed responsive pleadings but will do so by the time
the law requires.

     From time to time, we have received, and expect to continue to receive,
notices of claims of infringement of other parties' proprietary rights and other
claims in the ordinary course of our business. See "Risk Factors--We may become
involved in costly and time consuming litigation over proprietary rights."

Item 2:  CHANGES IN SECURITIES AND USE OF PROCEEDS

(a)      CHANGES IN SECURITIES: NONE


(b)      DIVIDENDS:

We have never declared or paid any dividends on our common stock. We do not
anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to finance operations and the
expansion of our business. Any future determination to pay cash dividends will
be at the discretion of the board of directors and will be dependent upon our
financial condition, operating results, capital requirements and such other
factors as the board of directors deems relevant. Moreover, pursuant to
agreements with our lender, we are prohibited from declaring or paying dividends
without the prior written consent of the lender. See "Management's Discussion
and Analysis of Financial Condition and Results the of Operations-Liquidity and
Capital Resources."

(c)      USE OF PROCEEDS

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<PAGE>

   On July 15, 1999 the Company's Registration Statement on Form S-1 covering
the Offering of 5,750,000 shares of our common stock, Commission file number
333-77269 was declared effective. From the effective date to March 31, 2001, the
amount of expenses incurred for the issuer's account in connection with the
issuance and distribution of the securities registered was incurred as follows:

     Underwriting discounts and commissions..................       $4,830,000
     Finders Fees............................................              ---
     Expenses paid to or for underwriters....................              ---
     Other expenses..........................................       $2,748,000
                                                                    ----------

     Total Expenses..........................................       $7,578,000
                                                                    ==========


     The offering was underwritten by Bear Stearns & Co. Inc, SG Cowen
Securities Corporation, and Volpe Brown Whelan & Company, LLC.

     The net proceeds of the offering (after deducting the foregoing expenses)
were $61,422,000. From the effective date of the registration statement to March
31, 2001, the net proceeds have been used for the following purposes:

     Construction of plant, building and facilities..............  $    167,266
     Purchase and installation of machinery and equipment........     4,474,991
     Acquisitions of other businesses ...........................     8,311,670
     Repayment of indebtedness...................................           ---
     Working Capital.............................................    48,468,073
     Temporary investments, including cash and cash equivalents..           ---
     Other purposes (for which at least $100,000 has been used),
     including:
     Investments, including debt instruments of the United States
     Government and its Agencies and in high quality corporate
     Issuers.....................................................           ---
                                                                   ------------
                                                                   $ 61,422,000
                                                                   ============

All of the foregoing payments were direct or indirect payments to persons other
than (i) directors, officers or their associates: (ii) persons owning ten
percent (10%) or more of the company's common stock; or (iii) affiliates of the
Company.

Item 3: DEFAULTS UPON SENIOR SECURITIES

     None

Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None

Item 5. OTHER INFORMATION

     None

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<PAGE>

Item 6: Exhibits and Reports on Form 8-K

   (a) Exhibits

Exhibit
Number          Exhibit Title
-------         ----------------------------------------------------------------
2.5             Asset Acquisition Agreement dated as of January 18, 2001 among
                STMicroelectronics, Inc., STMicroelectronics, NV, and RAVISENT
                Technologies Inc., RAVISENT I.P., Inc. and RAVISENT Operating
                Company, Inc. (7)

2.6             Asset Acquisition Agreement dated as of March 21, 2001 among
                Phoenix Technologies Ltd. and RAVISENT Internet Appliance Group,
                Ravisent I.P., Inc. and RAVISENT Operating Company, Inc. (8)

(7) Incorporated by reference to exhibit 2.1 to RAVISENT's current report on
    Form 8-K dated March 1, 2001, as filed with the Securities and Exchange
    Commission on March 16, 2001 (File No. 000-26287).

(8) Incorporated by reference to exhibit 2.1 to RAVISENT's current report on
    Form 8-K dated March 23, 2001, as filed with the Securities and Exchange
    Commission on April 9, 2001 (File No. 000-26287).

   (b) The following reports were filed on Form 8K during this period:

       On January 24, 2001 the Company filed a Form 8K announcing that it had
       signed a definitive agreement to sell the assets of its consumer
       electronics business to STMicroelectronics N.V., a Dutch corporation.

       On March 16, 2001, the Company filed a Form 8K for the sale of the assets
       of its consumer electronics business to STMicroelectronics N.V., a Dutch
       corporation. The report contained an unaudited pro forma consolidated
       statement of operations for the year ended December 31, 2000 to give
       effect to the sale of substantially all the assets and liabilities of the
       consumer electronics business as if it had occurred on January 1, 2000
       and an unaudited pro forma consolidated balance sheet as of December 31,
       2000 to give effect to the disposition as if it had occurred on such
       date.

       On March 26, 2001 the Company filed a Form 8K announcing that it had
       signed a definitive agreement to sell the assets of its Internet
       appliance business to Phoenix Technologies Ltd., a Delaware corporation.

       On April 9, 2001, the Company filed a Form 8K for the sale of the assets
       of its Internet appliance business to Phoenix Technologies Ltd., a
       Delaware corporation. The report contained an unaudited pro forma
       consolidated statement of operations for the year ended December 31, 2000
       to give effect to the sale of substantially all the assets and
       liabilities of the Internet appliance business as if it had occurred on
       January 1, 2000 and an unaudited pro forma consolidated balance sheet as
       of December 31, 2000 to give effect to the disposition as if it had
       occurred on such date. The unaudited pro forma information provided in
       this report also included the unaudited pro forma financial information
       included with the Company's report on Form 8-K filed on March 16, 2001
       for the sale of the assets of its consumer electronics business to
       STMicroelectronics N.V.

                                  SIGNATURES

  Pursuant to the requirements of Section 13 or 15(d) the Securities Act of
1934, as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Malvern,
Commonwealth of Pennsylvania on this 15th day of May 2001.

                                       52

<PAGE>

May 15, 2001      RAVISENT TECHNOLOGIES INC.


       /s/ Thomas J. Fogarty
           -----------------
           Thomas J. Fogarty
             Senior Vice President and Chief Financial Officer

                                       53